The Morning Call
8/22/19
The
Market
Technical
The Averages (26202,
2924) see sawed to the upside yesterday.
Volume was down, as usual; breadth improved. The
Dow ended below its 100 DMA (now resistance) and above its 200 DMA (now support).
The S&P ended back above its 100 DMA once again. This is the eighth time it has crossed this
level in the last thirteen trading days. Clearly, this level is acting as a magnet.
I continue to withhold a support/resistance call. It finished above its 200 DMA (now support).
Update on margin
debt.
The VIX fell 9 ¼ %,
finishing below its 100 DMA (now support; if it remains there through the close
on Friday, it will revert to resistance) but above its 200 DMA (now support).
The long bond was
down 5/8 %, but ended above both MA’s and in uptrends across all timeframes. It continues to be overextended.
The dollar rose
1/8 %, closing in short and long term uptrends and above both MA’s. However, it has created a minor resistance level
at its July 31st high.
Gold was off 3/8%,
but finished within very short term and short term uptrends and above both
MA’s. However, it still has the gap up open
from two weeks ago which needs to be closed.
And like TLT, it remains overbought.
Bottom line: long term, the
Averages are in uptrends across all timeframes; so, the assumption is that they
will continue to advance. Short term, they
voided very short term downtrends but are
having problems confirming a move above their
100 DMA. So, they remain in the congestion
range dating back to August 5th.
The pin action in the long bond, the
dollar and gold continues to point at the need for a safety trade.
Wednesday in the
charts.
Fundamental
Headlines
Yesterday’s
economic stats were a plus: while weekly mortgage and purchase applications
were off, July existing home sales (primary indicator) rose, though the number
was in line. Nothing overseas.
The
main headline of the day was the release of the minutes of the last FOMC meeting which
was a nonevent (1) because the narrative didn’t change that much and (2) the
meeting was before Trump upped the ante on tariffs; so it is assumed that the
minutes would have read more dovishly had it been after. Basically, the minutes (1) reiterated the
reasons for caution. (2) emphasized that the Fed wanted to maintain all policy
options, but (3) didn’t signal that a rate cut was imminent---which I believe
the Markets took with a grain of salt, given the aforementioned timing difference
between the FOMC meeting and the tariff hikes.
While the stock market greeted the minutes with a yawn, the 2s10s again
inverted.
More.
Fed ten months
behind.
The Fed’s balance
sheet.
Jeff Gundlach’s
thoughts.
Our Wile E Coyote
Fed.
The other notable
development was stronger than expected earnings and guidance from many retailers
which reported yesterday. Given that
consumer spending accounts of two-thirds of GDP, clearly these stats are a
positive sign for US economic growth. I
noted in last weekend’s Closing Bell, that if the trend in the numbers continued
to improve, I would likely turn off the flashing yellow warning light. These reports suggest that I should do it sooner rather than later.
Bottom line: one
down (FOMC minutes) and two to go (ECB minutes and Powell’s Jackson Hole
speech). At the moment, equity investors
aren’t giving any further evidence of doubting the Fed policy; though bond
investors seem to again be dissenting. Let’s
see if Powell can deliver a consistent narrative on Friday that would keep investor
juices flowing. That said, the aforementioned
strong retail earnings reports have to give the Fed pause regarding its pace of
easing.
As
a reminder, I don’t believe that additional Fed easing will do anything positive
for the economy, just as it hasn’t for the last decade. Conversely, I argue that a raise in rates not
only wouldn’t hurt the economy but also would likely help it in that it would
start the process of correcting the mispricing and misallocation of assets. But if that Fed/Market co-dependency remains
in place, lower rates will undoubtedly help stock prices.
The latest from
Kyle Bass.
News on Stocks in Our Portfolios
Revenue of $2.29B (-3.0%
Y/Y) in-line.
Economics
This Week’s Data
US
July
existing home sales rose 2.5%, in line.
Weekly
jobless claims fell 12,000 versus expectations of down 5,000.
International
The
August Japanese flash manufacturing PMI was 49.5 versus estimates of 49.9; the
services PMI was 53.4 versus 52.0; the composite PMI was 51.7 versus 50.0. The June All Industry Index was -0.8% versus
-0.7%.
The
August German flash manufacturing PMI was 43.6 versus consensus of 43.0; the
services PMI was 54.4 versus 54.0; the composite PMI was 51.4 versus 50.5.
The
August EU flash manufacturing PMI was 47.0 versus projections of 46.2; the services
PMI was 53.4 versus 53.0; the composite was 51.8 versus 51.2.
Other
Update
on truck tonnage.
Update
on architectural billings index.
Iran
threatens all oil routes if it can’t export oil.
Update
on Brexit.
The
Japan/South Korea dustup continues to escalate.
What
I am reading today
The Harem conspiracy.
What if aging is a curable disease?
What Leon Trotsky achieved.
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