The Morning Call
8/15/19
The
Market
Technical
The Averages’
(25479, 2840) pin action yesterday was
ugly. Volume was up and breadth
lousy. The Dow ended below its 100 DMA
(now resistance) and its 200 DMA (now support; if it remains there through the
close next Monday, it will revert to resistance). The S&P ended back below
its 100 DMA, continuing its see saw price action above and below this boundary
for the last eight trading days. Its pin
action has been too erratic around the 100 DMA to make a support/resistance
call; though clearly if there is any further follow though to the downside, it
will become resistance. However, it
remained above its 200 DMA (now support).
The VIX spiked
26%, finishing above both MA’s (now support) and is building a short term
uptrend. So, it lends a negative bias to
equities.
The long bond soared
2 ¼ %, ending above both MA’s, in uptrends across all timeframes and has made
another gap up open. In addition, as I noted yesterday, the Treasury 2s10s
curve has now inverted.
The dollar was up 5/8%,
ending in short and long term uptrends and above both MA’s. It still has a gap down open which needs to
be filled.
Gold rose 5/8%,
closing within very short term and short term uptrends and above both
MA’s. However, it still has last
Friday’s gap up open which needs to be closed.
Bottom line: long term, the
Averages are in uptrends across all timeframes; so, the assumption is that they
will continue to advance. While they
appear to have taken out their 100 DMA, they are out of sync on the 200
DMA. Plus, however painful yesterday’s
trading may have been, they remain well above the lower boundary of their short
term uptrends (23376, 2562). So, the indices could fall a lot further
without breaking their long term upward
momentum.
The pin action in the long bond, the
dollar and gold continue to point at the need for a safety trade.
Wednesday
in the charts.
Fundamental
Headlines
Two minor
datapoints were released yesterday: weekly mortgage and purchase
applications were up while both July import and export prices rose more than
anticipated.
Overseas,
lots of data, mostly negative: June Chinese fixed asset investments, industrial
production and retail sales, Q2 EU employment and June EU industrial production
were below expectations; plus, July UK CPI and PPI ran hotter than estimates;
Q2 EU and German GDP’s were in line; June Japanese machinery orders were above
forecasts.
Investors’
main focus yesterday was on the growing signs of recession: a soaring US
Treasury market, a further inverting of the yield curve and poor economic data
out of the EU and China. Given that for
the last decade bad economic news has been viewed as good Market news (since it
meant an easier Fed), this could be signaling a huge change in investor
attitude. Of course, one day’s pin
action is hardly a trend; but if bad economic news is becoming bad Market news,
then a major Market paradigm is reversing itself. The only thing to do now is to determine if
these shifts in investor attitude become permanent.
Not helping
investors’ mood was lousy news from China:
China pours cold
water on Trump’s ‘olive branch’. I tol’
you.
And re-engages on
three major oil related projects in Iran.
***then
overnight serves up somewhat conciliatory statement.
Bottom line: the
question before us is, was yesterday just a one off, temporary loss of
confidence by investors or are they finally getting the picture that assets are
grossly overvalued given the direction of the economy, the likely lengthy,
painful process of stopping Chinese unfair trade practices and that the Fed has
no clue what it is doing. But to
reiterate a point---one lousy Market day on some poor news is indicative of
almost nothing.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Weekly
jobless claims rose 9,000 versus estimates of up 3,000.
July
retail sales were up 0.7% versus expectations of +0.3%; ex autos, they were up
1.0% versus +0.4%.
The
August Philadelphia Fed manufacturing index came in at 16.8 versus forecasts of
10.0; the August NY Fed manufacturing index was 4.8 versus 3.0.
Preliminary
Q2 nonfarm productivity rose 2.3% versus consensus of +1.5%; unit labor cost
were up 2.4% versus 1.7%.
International
June
Japanese industrial production fell 3.3% versus projections of -3.6%; capacity
utilization fell 2.6% versus +0.2%.
July
UK retail sales were up 0.2 versus estimates of -0.2%; ex energy, they were up
0.2% versus -0.2%.
Other
What
I am reading today
The
laws of investing.
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