The Morning Call
8/6/19
The
Market
Technical
The Averages (25717,
2844) got hammered yesterday. They finished
below (1) the lower boundaries of their very short term uptrends; if they
remain there through the close today, the trends will be voided and (2) their
100 DMA’s; if they remain there through the close on Wednesday, they will
revert to resistance. As I noted
yesterday, if both support levels are successfully challenged, it raises the possibility
that the move above its all-time high was a false breakout. On the other hand, (1) both ended above their
200 DMA, though just barely in the case of the Dow, and (2) both had gap down
opens which need to be filled. That
points to some kind of bounce even if the indices are ultimately headed lower.
The VIX soared 37 ¾%. It has now voided a very short term uptrend,
reverted its 100 DMA to support and has been above its 200 DMA for a third day
(if it remains there through the close today, it will revert to support). Let’s see if these challenges are a harbinger
of similar behavior of stocks.
The long bond jumped
1 ¾% on huge volume and now reset its short, intermediate and long term trends
to up. However, it experienced a gap up
open which needs to be closed.
The dollar fell ½%
but remains in short and long term uptrends and above both MA’s. Like stocks, it had a gap down open which
needs to be filled. However, it did
close below the upper boundary of its former long term trading range just one
day after resetting to an uptrend. That
may indicate a false break out. Follow
through.
Gold jumped 1 3/8%,
reestablishing a very short term uptrend and remaining within a short term
uptrend and above both MA’s. It also
experienced a gap up open which needs to be closed.
Bottom line: as
ugly as yesterday was, it is important to remember that the indices remain solidly
in short, intermediate and long term uptrends.
Indeed, the lower boundaries of their short term uptrends are a good
distance away: 23495/2522. So, it will
take a lot more downside before the Averages longer term upward momentum will
be in question. Nonetheless, yesterday’s
shellacking could be warning shot.
Follow through.
The long bond and
gold acted as I would have expected given the headlines. Though I was surprised that the dollar
declined in the face of the yuan devaluation.
Monday in the
charts.
Fundamental
Headlines
Yesterday’s US
economic stats were weighed to the positive: the July Markit services and
composite PMI’s were better than forecasts while the July ISM nonmanufacturing
index was disappointing.
Overseas,
the July Chinese Caixin services and composite PMI’s were above
estimates; the July German services and composite PMI’s were below; the July EU
services PMI was above, the composite PMI was in line; the July UK services PMI
was better, though July auto sales were not good.
The
main headline of the day was the fall in the Chinese yuan. The big issue is, was this a move in the
trade war (which the Chinese government can control) or is it reflective of a
currency crisis (which the Chinese government may be unable to control). Remember the Chinese financial system is highly
leveraged and depends on dollars (which are now more expensive) for trade with
the rest of the world. If economic conditions
are weakening (also remember the government controls what gets reported),
investors may be exiting the yuan on fears of a financial crisis. At this point, we have no way of knowing
which alternative is the case. But the
latter poses a far greater danger to the global economy.
The Chinese perspective.
What is next?
Late yesterday,
the US labeled a currency manipulator.
What that means.
***overnight,
Chinese stabilize the yuan.
Bottom line: a depreciating
yuan whether it occurs deliberately or not, will not be helpful to global growth. It is too soon to say that this will
materially impact US growth.
However,
we know that if it negatively effects stock prices. the Fed will almost assuredly
be more aggressive in easing monetary policy.
And given the current Fed/Market
co-dependency, the assumption has to be that the Markets will respond positively. So,
the only question is how far the Fed will let equity prices drop before stepping
in. In other words, I don’t think that
this selloff presages a mean reversion process.
That is probably only going to happen when investors come to realize
just how inept the Fed has been in administering to the economy.
Nonetheless,
if a decent selloff occurs, I will likely begin nibbling away at my growing list
of purchase candidates.
News on Stocks in Our Portfolios
Revenue of $4.47B (+0.2%
Y/Y) misses by $350M.
Becton, Dickinson (NYSE:BDX): Q3 Non-GAAP EPS of
$3.08 beats by $0.02; GAAP EPS of $1.51 misses
by $0.29.
Revenue of $4.35B (+1.6%
Y/Y) misses by $20M.
Economics
This Week’s Data
US
The
July Markit services PMI came in at 53.0 versus projections of 52.2; the
composite PMI was 52.6 versus 51.6.
The
July ISM nonmanufacturing index was reported at 53.7 versus estimates of 55.5.
July
light vehicle sales equaled 16.8 million units versus consensus of 16.9 million
units.
International
June
Japanese household spending fell 2.8% versus expectations of -3.0%; cash earnings
were up 0.4% versus -0.9%; leading economic indicators came in at 93.3 versus
93.6.
June
German factory orders rose 3.5% versus projections of +0.5%; the construction PMI
was 49.5 versus 50.9.
Other
What
I am reading today
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