Monday, September 30, 2019

Monday Morning Chartology


The Morning Call

9/30/19

The Market
         
    Technical

            The S&P has almost closed the 9/4 gap up open.  One more modestly weak day and that will be eliminated as a downside pull; which would set the stage for an attack on its all-time high (3027) and the upper boundary of its long term uptrend (3217?) which is low but my charting service still hasn’t solved its problems so I don’t have a good reading).  On the other hand, the Dow isn’t close to filling the 9/4 gap up open.  Until that occurs it will act as an anchor to any general price advance.



            The long bond has rebounded from the sharp 9/4 selloff; but it is not out of the woods.  To do so, it needs to set a second higher lower (which it may be in the process of doing) and then a second higher high.  This is a wait and see chart.



            Of all the major indices that I follow, UUP’s chart is the most the most stable.  It has no gap opens, no potential challenged to MA’s or trend lines.  For obvious reasons, that circumstance usually occurs when the world wants dollars either because various countries’ industries need dollars for trade (good news) or their financial systems need dollars for liquidity/solvency reasons (bad news).

            The latest on dollar funding shortage.



            On a short term basis, GLD have been weak, though it remains above both MA’s and in very short term and short term uptrends.  As you can see, there are two trendlines that will define its short term pin action---the declining boundary on the upside and the base it has been building since 9/6.  One has to break.



            The VIX spiked again on Friday, leaving it above both MA’s (now resistance; if it remains above its 100 DMA through the close on Tuesday, it will revert to support; if it remains above its 200 DMA though the close on Wednesday, it will revert to support).  The VIX has pretty much traded in sync with the Averages of late.  So, I don’t see this pin action as particularly telling. But it is clearly not suggesting that stocks have overdone it to the downside.



    Fundamental

       Headlines

            As last week progressed, my impression was that the economic data was going to be positive.  Actually, out of 17 indicators, nine was positive and eight were negative.  The primary indicators were mixed---one plus, one minus and one neutral.  My call is neutral.  To be clear; even if I ruled a positive, it would be so weak as to not really count.  Score: in the last 206 weeks, sixty-seven were positive, ninety-one negative and forty-eight neutral.   So, the pattern continues: A little bit of this (positive). A little bit of that (negative).  My forecast for sluggish growth is unchanged.

                Overseas, the numbers were overwhelmingly negative.  I am not sure the US economy can grow with the rest of the world’s economic growth slowing.

            The three major headlines last week were:

(1)   lots of happy talk about trade which as you know I believe should be discounted heavily,

(2 ) the dem’s push toward impeaching Trump [again].  I have no idea how this                turns out.  But I do believe that if the dem’s are pushing for a vote to impeach, it won’t help investor psychology,

(3)   continuing turmoil in the overnight repo market.  There are varied opinions about  this a either a signal that global liquidity is drying up or just a [sort of] normal situation about which there should be no concern.  Certainly, to date the latter opinion is dominant in the investor class.

    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

     International

            The September Chinese Caixin manufacturing PMI was 49.5 versus estimates of 49.0; the services PMI was 53.8 versus 54.0 and the composite PMI was 50.4 versus 50.0

            August Japanese housing starts fell 7.1% versus forecasts of -6.1%; construction orders were down 25.9% versus  -2.0%.

            August German retail sales were up 0.5% versus expectations of +0.6%; September CPI was 0.0% versus +0.1%.

            Q2 UK GDP growth was -0.2%, in line; business investment was -0.4% versus -0.5%.

            August EU unemployment was 7.4% versus projections of 7.5%.

    Other

            Latest on Brexit.

            A summary of Rouhani’s visit to the UN.

What I am reading today

           

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.




Friday, September 27, 2019

The Morning Call---Still more trade happy talk


The Morning Call

9/27/19

Off to pledge class reunion. No Closing Bell.

The Market
         
    Technical

            The Averages (26891, 2927) were off slightly yesterday on lower volume (pretty soon there won’t be any) and poor breadth.  The VIX was up 5/8% but remains below both MA’s---a plus for stocks.  My directional assumptions remain that short term the 9/4 gap up opens need to be filled but longer term the momentum is to the upside.

            The long bond bounced (+5/8%) after Wednesday’s drubbing.  GLD didn’t---down four cents.  And the dollar continued its winning way (up ¼%).  Long term, these charts remain solid; though trading in the last week has been confusing.

            Here is an easily understood explanation of the repo market and one that is more sanguine than some of the other links that I have included.

            ***overnight, dollar shortage eases.

            China’s looming dollar debt problem.

            Fed policy and gold.

            Thursday in the charts.

    Fundamental

       Headlines

            Yesterday’s data releases were generally upbeat: August pending home sales, the September Kansas City Fed manufacturing index and the August trade deficit were better than anticipated; final Q2 GDP growth was in line; while weekly jobless claims and the Q2 PCE price indicator had unfavorable comparisons.

            Again, nothing from overseas except this from Ed Yardini.

            About the only headline (as opposed to real news) was more happy talk on US/China trade.  This time for the Chinese foreign minister.

            Bottom line: it looks like this week’s economic stats will again be positive.  The US is going to need it, given the data releases from the rest of the world.  Still it reinforces my conviction that the US will not experience a recession; but if it does, it will likely be a mild one.  That said, equity valuations are extreme for even this upbeat scenario.  Of course, that doesn’t matter; nor apparently the low probability of a successful conclusion to the US/China trade standoff; nor the dems seemingly driving to the hoop to impeach Trump for whatever reason they can fabricate.  All that matters is an easy Fed.  But when that story ends, there will only be one out the door first; everyone will feel the pain.  It makes sense to me to reduce that potential pain by having some cash as a margin of safety.

                Peak buybacks?

            Prepare now for the end of the bull market.

    News on Stocks in Our Portfolios
 
            AT&T (NYSE:T) declares $0.51/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

            August pending home sales were up 1.6% versus forecasts of +0.9%.

            The September Kansas City Fed manufacturing index came in at 11 versus estimates of -3.9.

            August durable goods orders rose 0.2% versus consensus of -0.1%; ex transportation they were +0.5% versus +0.2%; ex defense, they were -0.6% versus +0.1%.

            August personal income was up 0.4%, in line; personal spending was up 0.1% versus up 0.3%.

     International

            August YoY Chinese industrial profits fell 1.7% versus projections of -2.0%.

            September EU consumer confidence was 19.5 versus an anticipated 20.0; business confidence was -.22 versus +.11; economic confidence was 101.7 versus 103.0; industrial sentiment was -8.8 versus -6.0; services sentiment was 9.5 versus 9.3.

    Other

            How accurate is Chinese data?  I have raised the question numerous times.  This is the first attempt that I have seen to quantify the answer.

            An example of why public employee pension plans are bankrupting municipalities.

What I am reading today

            If the world is ending in twelve years, why go to college?
Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.




Thursday, September 26, 2019

The Morning Call--More trade happy talk


The Morning Call

9/26/19

The Market
         
    Technical

            The Averages (26970, 2984) were up yesterday, reversing Tuesday’s selloff---though volume was lower and breadth improved only marginally.  However, the VIX got pounded (down 6 3/8%), closing back below both MA’s (now resistance) and negating Tuesday’s upside break.   

            I mentioned yesterday that the S&P was near enough to the 9/4 gap up open that it could potentially close it.  Even though the S&P was down intraday, it was still unable to do so.  The Dow has not even gotten close.  So those gaps will continue to generate a magnetic pull to the downside.  That said, the indices’ momentum remains up on a long term basis.

            The long bond and gold were hammered largely in reaction to a strong dollar.  The bad news is that this pin action was a significant reversal in their recovery.  The good news is that on a short term basis, they both have gap down opens that need to be filled; and on a longer term basis, momentum remains to the upside.

            The dollar’s strength seemed to be the result of more happy talk on trade from Trump, the innocuous language in the Trump/Ukraine phone call and the continuing liquidity problem in the overnight funds market.
           
            More on the dollar liquidity problem.

            Still more.

            Repo guru;  we have a problem.

            ***overnight, it got worse.

            Wednesday in the charts.

    Fundamental

       Headlines

            US economic releases yesterday were positive;  weekly mortgage and purchase applications were down but new home sales (primary indicator) were very upbeat.

            Nothing overseas.

             With all the impeachment talk, what better way to lift investor spirits than another upbeat statement about the likelihood of a US/China trade deal?  How many times can he do this before everyone stops listening?  I don’t have a clue.  But, in  my mind, nothing has occurred that changes the odds of a (no) deal before November 2020.

            US imposes sanctions on Chinese tankers carrying Iranian oil.

            Trump released the transcript of his phone call with the Ukrainian president.  As you might expect, the dem’s position is that it supports their view that Trump’s comments were potentially an impeachable offense while the GOP scoffs.  My take is that nothing is going to occur except political theater.  The good news is that as long as this clown show goes on, the less damage the political class can do to the taxpayers.  The bad news is that it adds to the deep divisions within the body politic and may prove a negative to investor psychology.

            Bottom line: my thesis has been that stocks have reached historically high valuations primary driven by irresponsibly accommodative monetary policy; and the mean reversion of those valuations will likely be triggered by the loss of faith in the Fed.  I certainly don’t know what will spark that collapse in confidence.  But I am paying close attention to the current bank funding issues as a potential source.

I assume stock prices will continue advance based on their technical strength.  But I would use that strength to build protection in my portfolio.  I am not saying sell and run for the hills.  I am saying build a cash position by selling a portion of holdings that have been big winners or all of those that have been losers.

            What the rise in passive investing is doing to the markets.

     Subscriber Alert

            In my quarterly review of Kimberly Clark (KMB), it failed to meet the minimum financial requirements for inclusion in the High Yield Universe.  Accordingly, it is being Removed and the High Yield Portfolio’s position Sold.

    News on Stocks in Our Portfolios
 
FactSet Research Systems (NYSE:FDS): Q4 Non-GAAP EPS of $2.61 beats by $0.15; GAAP EPS of $2.34 beats by $0.04.
Revenue of $364.28M (+5.3% Y/Y) beats by $1.89M

Accenture (NYSE:ACN): Q4 GAAP EPS of $1.74 beats by $0.02.
Revenue of $11.06B (+5.3% Y/Y) in-line.

Economics

   This Week’s Data

      US

            Weekly mortgage applications fell 10.1% while purchase applications were down 3.1%.

            Weekly jobless claims were up 3,000 versus projections of up 2,000.

            August new home sales rose 7.1% versus estimates of +3.5%.

            The August trade deficit was $72.8 billion versus expectations of $77.3 billion.

            The final Q2 GDP reading was +2.0%. in line with forecasts; the PCE price indicator was up 2.6% versus 2.4%.

     International

    Other

ECB hawk resigns.

What I am reading today

            Fifty years of failed climate change warnings.

            The cumulative cost of auto maintenance.

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.




Wednesday, September 25, 2019

The Morning Call--Much ado about nothing


The Morning Call

9/25/19

The Market
         
    Technical

            The Averages (26807, 2966) fell yesterday on significantly higher volume (not a positive sign) and deteriorating breadth.  The S&P ended just above the upper boundary of the September 4th gap up open. Though the Dow is still a distance away.

The VIX soared 14 3/8%, closing above both MA’s (now resistance); if it remains above its 100 DMA through the close on Thursday, it will revert to support; if it remains above its 200 DMA through the close of Friday, it will revert to support.  This is not a plus for equities.

The indices remain above both MA’s and in uptrends across all time-frames.  So, my assumption is that the momentum remains to the upside.  However, the odds of them closing those 9/4 gap up opens is high and rising.  That said, as I noted previously, those gap up opens needed to close to eliminate them as a technical negative to a further advance in stock prices---in other words, closing them would be a potential positive.

Gold was up ½% and the long bond 1 ¼% so the need for safety appears to be growing.  On the other hand, the dollar is backing and filling which is not really reinforcing the pin action in GLD and TLT.

            Tuesday in the charts.

    Fundamental

       Headlines

            Yesterday’s stats were mixed: the September manufacturing and composite PMI’s and the September Richmond Fed manufacturing index were better than anticipated while month to date retail chain store sales, the July Case Shiller home price index , the September services PMI and the September consumer confidence index were below expectations.

Overseas, the July Japanese leading economic indicators, the September services and composite PMI’s were above estimates while the manufacturing PMI was below.

            Other headlines impacting the Market:

(1)   Middle East.  This situation is not cooling off.

US accuses Iran proxies of attack on US Baghdad compound.

                  UK, Germany and France agree Iran responsible for Saudi attack.

(2)   trade.  In UN speech, Trumps hammers China’s trade practices.

But China makes another ‘goodwill’ gesture, preparing to increase US pork imports [it forgot to mention that the swine flu has devastated its pork producers and it needs to keep its population fed].

(3)     impeachment. Pelosi announced an impeachment inquiry.  I try to avoid politics; but this could have an impact on the Market.  Two observations: [a] an inquiry is not an impeachment proceeding and [b] it is the Senate that votes on impeachment.  The dems would need approximately 20 GOP senators to impeach Trump.   Unless Trump was demanding the Ukrainian president to send over his favorite goat in order to get US aid, my guess is that the odds of impeachment are slim to none.  Indeed, if this whistleblower affair turns out like every other dem attempt to discredit and impeach Trump, it could prove a plus for him and his re-election prospects        

The latest.

                  And.

Bottom line: as volatile as yesterday’s headlines appear, I don’t see anything that would permanently damage investor psychology.  Ultimately, any mean reversion in equity valuation will be, in my opinion, a function of investor recognition of the disaster that is Fed money policy. 

            Insider selling hits 20 year high.

            Blackstone CEO warns of asset bubble.

    News on Stocks in Our Portfolios
 
General Mills (NYSE:GIS) declares $0.49/share quarterly dividend, in line with previous.

Nike (NYSE:NKE): Q1 GAAP EPS of $0.86 beats by $0.15.
Revenue of $10.66B (+7.1% Y/Y) beats by $230M.


Economics

   This Week’s Data

      US

            Month to date retail chain store sales grew slower than in the prior week.

            The July Case Shiller home price index was up 0.1% versus estimates of up 0.3%.

            The September Richmond Fed manufacturing index came in at -9 versus consensus of -11.

            The September consumer confidence index was reported at 125.1 versus forecasts of 133.5.

     International

    Other

What I am reading today

           

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.