The Morning Call
8/14/19
The
Market
Technical
The Averages (26279,
2926) made yet another reversal yesterday, closing up on the day. Volume was up (finally) and breadth improved
(but not by much). The Dow closed right
now 100 DMA (now support; still pointing
to a reversion to resistance). The
S&P ended back above its 100 DMA, continuing to see saw above and below
this boundary for the last seven trading days; its pin action has been too
erratic around the 100 DMA to make call support/resistance call. Both indices remained above their 200 DMA’s---which
right now is their major support levels.
The VIX declined 17
%, but still finished above both MA’s (now support) and is building a short
term uptrend. So, it lends a negative bias
to equities.
The long bond backed
off 3/8%, but remained above both MA’s and in uptrends across all
timeframes. However, it still has last
Monday’s gap up open which needs to be closed.
Treasury2s10s yield
curve inverts.
The dollar was up ½%,
ending in short and long term uptrends and above both MA’s. It still has a gap down open which needs to
be filled but it closed back above the upper boundary of its former long term
trading range. Good news if you want a
higher dollar.
Gold was down 5/8%
but finished 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. But they seem
to be stuck around their 100 DMA’s. If
they move decisively above those barriers, then momentum will clearly remain to
the upside. If they can’t, then the
current consolidation will continue. But
the lower boundaries of their short term
uptrends are much lower. So, the indices
could experience a big correction and still not break their upward momentum.
That said, while stocks got jiggy
yesterday, the pin action in the long bond, the dollar and gold are all
pointing at the need for a safety trade.
Tuesday in the charts.
Fundamental
Headlines
Yesterday’s data
releases were negative: the July small business optimism index came in below estimates,
month to date retail chain store growth slowed; July CPI was in line but the
core number was hotter than anticipated.
Overseas,
the numbers weren’t any better: July Japanese PPI and machine tool orders, July
German PPI and the August EU economic
sentiment were disappointing; the July German CPI and Q2 UK productivity were
in line; and May UK jobs growth were above expectations.
Of
course, the big headline of the day was Trump’s decision to remove some
products from the tariff increase list scheduled to take effect September 1st
(health, safety and national security considerations) and delay the imposition
of the tariffs for other products to December 15th (cell phones,
laptops, video game
consoles, computer monitors, and certain toy, footwear and clothing items---in other words, products
most likely to be purchased at Christmas).
What
did Trump get in return? An agreement to
resume trade talks in a couple of weeks---as they say on the trading floor ‘sold
to you’. At the risk of being
repetitious, let me review my thesis:
China is not going to agree to any trade deal until at least November
2020, if then.
That leaves any progress to a
resolution on Trump’s shoulders: (1) he can fold (in the hopes of influencing
the 2020 elections) in which case Chinese pernicious industrial and IP policies
go unchanged and the economic turmoil generated by the trade war in the first
place will be for naught, or (2) he can play hardball and continue to punish
the Chinese until they relent or all US supply chains move elsewhere.
Yesterday’s announcement has
all the markings of alternative (1) above.
Now there is the possibility Trump could be playing the Market---giving
it reason to ramp up near term but not really changing his overall long term
strategy. i.e. the kicking the can down the road strategy. But what is he going to do in September/October
2020 when there is no deal?
My conclusion is the same as
before---whichever, alternative that Trump chooses, negative headlines are in
our future. If he folds, the economy
will improve short term but the long term economic growth prospects are
negative. If he hangs tough, the economy
will continue to experience a short term drag on growth but the longer term
outlook improves.
That, of course, assumes that
the Chinese won’t fold (which I believe that they won’t). If they do, then both short and long term
growth forecasts will be much brighter.
Bottom line: at
the moment, it appears that the Donald has called a timeout in the US/Chinese trade
war, (1) giving some consumer related US companies a rest until after Christmas,
(2) more time for them to move production out of China, (3) hoping that the
Chinese will view this as an olive branch and respond accordingly and (4) giving
the stock market a boost [which we all know is his barometer of presidential
success].
I think that giving
US industry a respite, however brief, was a smart thing to do even if I don’t believe
that the Chinese will make any meaningful concessions. However, while stocks got all jiggy with it,
the bond, currency and gold traders are pointing at problems that will overwhelm
any short term effects of a delayed imposition of tariffs---like recession. The caveat, as I noted above, is that the
Chinese are serious about making a deal.
And.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
July small business optimism index was reported at 104.7 versus estimates of
104.9.
Weekly mortgage applications
were up 21.7% while purchase applications grew 2.0%.
July
export prices advanced 0.2% versus consensus of 0.0%; import prices were up
0.2% versus 0.0%.
International
June
Japanese machinery orders rose 13.7% versus estimates of -1.3%.
YoY
June Chinese fixed asset investments were up 5.7% versus forecasts of up 5.8%; industrial
production was up 4.8% versus up 5.8%; retail sales were +7.6% versus +8.6%.
Q2
German flash GDP was -0.1%, in line.
July
UK CPI was 0.0% versus expectations of -0.1%; core CPI was +0.1% versus -0.1%;
PPI was +0.9% versus +0.5%; core PPI was +0.3% versus +0.1%.
Q2
EU GDP grew 0.2%, in line while employment was up +0.2% versus +0.3%; June industrial
production was -1.6% versus -1.4%
Other
Mortgage
delinquencies rose in Q2.
Household
debt continues to increase.
The
Phillips Curve trade off.
Is the Fed really
robbing savers?
Your
tax dollars at work.
54%
say Brexit in any form.
What
I am reading today
How the Hong Kong protest
could impact global and US/China trade.
And.
Warfare
in ancient Maya.
The tough choices in Medicare
for all plans.
The air battle over Britain (WWII).
Thoughts on current political discourse.
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for Survival’s website (http://investingforsurvival.com/home)
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