Wednesday, September 11, 2019

The Morning Call--The Market's internals

The Morning Call


The Market

The Averages (26909, 2979) had another relatively quiet day, closing above both MA’s and in uptrends across all timeframes. Volume was up; and breadth improved.   The only negative is that both of the indices made gap up opens last Thursday---which will have to be closed.
                The VIX fell ½ %, ending below its 200 DMA for a fourth day, reverting to resistance.  However, it closed back below its 100 DMA (now support, if it remains there the close on Thursday, it will revert to resistance) and the lower boundary of its August 5th trading range (inversely related to the August 5th trading range for the Averages); if it remains there through the close today, it will void that trend.

            The long bond was down another 1 ¾ %, finishing above both MA’s and in uptrends across all time frames.   So, the chart remains strong and the trend toward lower rates remains intact.  It also has last Thursday’s gap down open---which needs to be filled.

            How much bigger can the bond bubble get?

            The dollar rose three cents, ending above both MA’s and in short and long term uptrends. In addition, it still has last Wednesday’s gap down open---which needs to be closed. 

            GLD was down another 7/8 %.  Nonetheless, it closed above both MA’s and in very short term and short term uptrends.  There  is also last Thursday’s gap down open---which needs to be filled.

            Bottom line: long term, the Averages are in uptrends across all timeframes; so, the assumption is that they will continue to advance.  Short term, they have resolved their August 5th trading range to the upside, pointing to the return of upward momentum.  The next resistance levels are their July all-time highs (27398, 3027). 

            Underneath what appears to be a relatively quiet Market is major rotation out of growth stocks into value stocks---which seems to be driven by a developing scenario that includes the economy avoiding a recession, an easier Fed and a US/China trade deal.  That change in investor psychology would also account for the pin action in TLT, UUP and GLD.

           I am not sure that is the case.  From a technical standpoint, all those gap opens last week may just be a sign that the pessimism (need for a safety trade) had gotten over extended---certainly the pin action in TLT, UUP ad GLD couldn’t keep advancing at the accelerated pace from early June indefinitely.  At some point, consolidation had to occur.  The point being that the original retreat to a safety trade may well be the correct fundamental call, it just got overextended on a technical basis. 

            That said, the new investor perspective could be right.  It is too early to know.  We will get a good idea of the correct outlook by the way the indices handle those gap opens, i.e. a correction that just covers those gaps would point to higher prices (and the more positive economic scenario); on the other, if the indices blow through them, then the original need for a safety trade was the correct one.

            Tuesday in the charts.



Three tertiary indicators were released yesterday.  Unfortunately, they were all disappointing: the July job openings (JOLTS) report, the August small business optimism index and month to date retail chain store sales.

Overseas, August Chinese CPI and PPI were higher than anticipated; August Japanese machine tool orders plummeted; while the July UK unemployment rate and personal income were better than expected.

            The ECB meets tomorrow, so the news flow will pick up.

Another argument for the ECB doing nothing.

            The ECB’ dilemma.

            ***overnight, China extends olive branch.
            Bottom line: it was another slow day for news on trade, monetary and fiscal policies.  Indeed, the most important thing to note was the internal mechanics of the Markets (see above).  Nothing changed.

    News on Stocks in Our Portfolios


   This Week’s Data


The July job openings (JOLTS) report showed 7.217 million openings versus estimates of 7.311 million.

            The August small business optimism index came in at 103.1 versus forecasts of 104.0.

                Weekly mortgage applications rose 2% while purchase applications were up 5%.

            August PPI came in at +0.1% versus projections of 0.0%; core PPI was +0.3% versus +0.2%,


            August Chinese vehicle sales fell 6.9% YoY versus consensus of -3.2%; outstanding loan growth was 12.4%, in line.


            Nominal trade losses from the tariff war.

            The latest on Brexit.

What I am reading today

            An argument for government subsidized college education versus student loans.

            How to make your retirement savings recession proof.

            The benefits of a progressive consumption tax.

            Prosperity breeds idiots.

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