Friday, August 16, 2019

The Morning Call--Much needed positive economic news


The Morning Call

8/16/19

The Market
         
    Technical

The Averages (25579, 2847)  bounced around yesterday but ended up modestly on the day.  Volume was down and breadth positive, though just barely.  The Dow ended below its 100 DMA (now resistance) but right on its 200 DMA (now support; that stops the clock on a reversion to resistance pending follow through). The S&P ended below its 100 DMA for a second day; however, given its recent see saw price action above and below this boundary, I have put a directional call on hold.  It remained above its 200 DMA (now support).  Very short term, both indices intraday bounced off their 8/5 low.  So that is a level to watch.

The VIX fell 4 1/8 %, but still finished above both MA’s (now support) and continues to build a short term uptrend.  So, it lends a negative bias to equities.

The long bond was up another 1 1/8 %, ending above both MA’s, in uptrends across all timeframes and has made another gap up open.

The dollar was up two cents, 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 an additional 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.  However, 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 continues to point at the need for a safety trade.

            Thursday in the charts.

    Fundamental

       Headlines
            Yesterday’s data was very positive including several upbeat primary indicator releases:
July retail sales, July business inventories/sales, the August housing market index, the August Philly and NY Fed’s manufacturing indices, the preliminary Q2 nonfarm productivity were above estimates while weekly jobless claims and July industrial production were below.
           
            Update on big four economic indicators.

            Overseas, June Japanese industrial production and July UK retail sales were better than anticipated.

            Aside from those really good numbers, investor attention was divided between concern about the recently inverted yield curve:

                        Don’t freak out about the yield curve, says this analyst.

                                Counterpoint.

                                But be cautious.

            ***overnight, the Bank of Japan reduces its bond purchases (QE).

And the US China trade dispute:

                        US/China trade war unlikely to be solved soon.

            ***overnight, Hong Kong announces $2 billion stimulus program.

            Bottom line: yesterday’s stats were a welcome relief from what has been a negative trend.  It is not enough to turn off the flashing yellow light.  But if it is a precursor to a turn in the dataflow, then it improves the odds that my current forecast (sluggish growth) could prove correct even if the global economy slips into recession or near recession.

           Of course, the yield curve seems to be pointing otherwise, though if you have been reading the linked articles, you know that it takes months if not years for the economy to roll over following a yield curve inversion.  Plus, we just don’t know the ultimate impact of a prolonged US/China trade dispute.
           
            Advice from Nomura.

            Advice from Charles Gave.

            (good) Advice for the Fed.

For the optimists.
           

    News on Stocks in Our Portfolios
 
            Tiffany (NYSE:TIF) declares $0.58/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

            June business inventories were flat versus expectations of up 0.1%; however, sale rose.

            July industrial production declined 0.4% versus estimates of down 0.1%.

            The August housing market index came in at 66 versus forecasts of 65.

            July housing starts fell 4.0% versus consensus of -1.7%; however, building permits rose 8.4% versus +3.1%.

     International

            The June EU trade surplus was E20.6 billion versus an anticipated increase of E16.3 billion.

    Other

           Update on Brexit.


                
                

What I am reading today

            The four stages of retirement.


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