Friday, August 9, 2019

The Morning Call--Monday's gap down opens now filled.

The Morning Call


The Market

The Averages (26378, 2938) followed through Wednesday’s big intraday rebound with a very strong performance, closing last Monday’s gap down opens.  However, volume was down again and while breadth improved, money flow remained negative.  The Dow closed above its 100 DMA (now support) and the S&P ended above its 100 DMA one day after reverting to resistance.  I am going to hold that call in abeyance pending more follow through. Both indices remained above their 200 DMA’s.

                And with more detail.

The VIX was down another 13 ¼ %, but still finished above both MA’s (now support).  That is a bit of negative for stocks.

The long bond advanced ¼%, remaining above both MA’s and in uptrends across all timeframes.  However, it experienced a gap up open on Monday which needs to be closed.

The dollar was up slightly on huge volume, ending in short and long term uptrends and above both MA’s.  It still has a gap down open which needs to be filled.  However, it did close below the upper boundary of its former long term trading range for a fourth day---which is a bit worrisome as it raises the odds that Friday’s breakout could prove false.  Follow through.

Gold jumped another  ½ %, ending 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: the Averages are in uptrends across all timeframes, closing Monday’s gap down opens.  Now, the question is, can the rally continue or are stocks now free to resume a downtrend.  I await the answer.  The  major argument against any kind of rally is that the long bond, the dollar and gold are all pointing at the need for a safety trade.

            Thursday in the charts.


            Yesterday’s data releases were mixed: weekly jobless claims fell more than expected while August wholesale inventories were below estimates and sales were even worse.
            Overseas, one number: the July China trade balance came ahead of forecast.


            There were few notable headlines.  So, I will continue the focus on central bank monetary policy.

            The Fed and demand versus supply ‘shocks’.

            The Fed is the problem.

Bottom line: the concern over a worsening of the trade war seems to be subsiding, though my thesis remains that the Chinese will do nothing concrete before November 2020 and may be not even then.   I think the Chinese signaled fairly clearly on Monday that if Trump imposes those additional tariffs on September 1st, they will devalue the yuan.  So, the level of economic pain is on Trump’s shoulders. 

Of course, there is always to Fed to bail out the Market (forget about the economy; these guys have done nothing but damage since QEI).  I noted yesterday that the investors may be starting to question their faith in the central banks/the Fed ability to influence their economies.  The risk is increasing that investors’ glorified perception of the Fed is becoming more tenuous. 

            The math of devaluation.

            Here is an article by an opponent of Trump’s China strategy.

    News on Stocks in Our Portfolios
C.H. Robinson Worldwide (NASDAQ:CHRW) declares $0.50/share quarterly dividend, in line with previous.
United Parcel Service (NYSE:UPS) declares $0.96/share quarterly dividend, in line with previous.
Nike (NYSE:NKE) declares $0.22/share quarterly dividend, in line with previous.


   This Week’s Data


            August wholesale inventories were flat versus estimates of +0.2%; and worse, sales fell 0.3%.

                July PPI was up 0.2%, in line; core PPI fell 0.1% versus +0.2%.


            July Chinese CPI was up 0.4% versus expectations of up 0.2%; PPI was -0.3% versus -0.1%.

             The June German trade balance was +E18.1 billion versus estimate of E18.6 billion.

            Q2 UK GDP was -0.2% versus consensus of 0.0%; construction output was -0.2% versus +0.2%; industrial output was -0.1% versus -0.2% manufacturing output was -0.2% versus -0.1%; business investment was -0.5% versus -0.3%; Q2 GDP was -0.2% versus unchanged.


What I am reading today


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