The Morning Call
9/13/19
The
Market
Technical
The Averages (27182,
3009) had a roller coaster day but finished on the upside, closing above both
MA’s and in uptrends across all timeframes; though volume was down (again) while
breadth pushed further into overbought territory. The only negative is that both of the
indices made gap up opens last Thursday---which will have to be closed.
The VIX fell 2 5/8 %, ending below its 200 DMA (now
resistance) and below its 100 DMA for the third day, reverting to resistance.
The
long bond was down 5/8 %, but still finished above both MA’s and in uptrends
across all time frames. However, it closed
below the minor support level that I mentioned yesterday. That is the first negative technical
development since November 2018. I still
believe that TLT got way overextended to upside and the current sell off is a
natural reaction. That said, the break
of the minor support level is an alert signal.
On the other hand, last Thursday’s gap down open isn’t going
away---which needs to be filled.
The
dollar was down 3/8%, but experienced a very volatile day, intraday closing last Thursday’s gap down open as well as this Wednesday’s
gap up open. It ended above both MA’s
and in short and long term uptrends without the distraction of those gap opens.
GLD
was up ¼ %, closing above both MA’s, in very short term and short term uptrends
and bounced off a minor support level. It
still needs to fill last Thursday’s gap down open.
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 regain
upward momentum. The next resistance
levels are their July all-time highs (27398, 3027).
From a technical standpoint, I
continue to believe that all those gap opens are important. As I noted yesterday, at least part of their cause
is the lack of liquidity. That isn’t
helped when the news flow resembles a Bugs Bunny cartoon (see below). That is
not a good thing when the Averages are short hair from all-time highs. Time to be careful.
A look at the
underlying volatility in the Market (must read):
More.
Thursday in the charts.
Fundamental
Headlines
Yesterday’s stats
were mixed: weekly jobless claims were a plus, the August budget deficit a
negative. The August CPI was in line but
the core number was higher than expected---which is a negative whether you are
an easy money proponent or a consumer.
Gundlach puts 75%
chance of recession before 2020 election.
Shiller on the economic/Market
narrative.
Here is a similar
analysis.
Overseas, August
Japanese PPI fell more than expected while German CPI was down but in
line. July EU industrial production was
awful.
After a very quiet
start to the week, the news flow moved into the red zone yesterday.
First,
the ECB lowered interest rates and re-initiated QE. The narrative out of its meeting sounded appropriately
dovish. Then, we started to get some cognitive
dissonance:
(1)
there was apparently a great deal of dissent within
the ranks of the ECB which could make future ECB moves more uncertain.
(2)
then analysts put a pencil to QEInfinity and
appears that there is a limit to ECB bond purchases
The central
bankers are kidding themselves.
This analyst
agrees.
(And speaking of
kidding themselves, how could the Fed be considering rate cuts in an environment
in which the budget deficit is exploding and CPI/PPI are coming in hotter than
anticipated?)
The other major
headline was on trade. Before the Market
open yesterday, Trump responded to the Chinese Wednesday move to delay tariff
on certain US goods by, delaying the tariffs scheduled to go into effect October
1st until October 15th. China then countered, saying that it is considering
lifting restrictions on the purchase of US agricultural products. Trump ruined the party denying rumors that the
parties were working on an interim trade deal but late in the day reversed that
statement.
Bolton’s departure
ups the odds of a China trade deal.
***overnight,
China formerly announces the lifting of restrictions on the purchase of soybeans
and pork.
Clearly, this
rapid de-escalation of the trade war (1) is a plus and (2) could make me wrong
for being so cynical. However, I am
withholding judgment until after the communist party 70th birthday
bash (October 1st).
Bottom line: If had you told me that on a day that (1) the
ECB would lower rates and re-start QE and (2) Trump and the Chinese tried to outdo
themselves with ‘goodwill gestures’ that the Dow would be up a mere 45 points, I
would have laughed.
Now, undoubtedly some
of this good news was in prices. Indeed,
I pointed out earlier this week that investor psychology was becoming more
optimistic on the economy and trade. But,
I was still very surprised that upbeat news on the two major driving factors of
stock prices for the last year was greeted with only limited enthusiasm.
When coupled with
the technical factors mentioned above (gap opens/volatility/ lack of liquidity),
it seems to me that risk levels have risen to levels that would warrant another
review of those stocks in their Sell Half ranges (big winners).
A desktop guide to
trading.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
August budget deficit was $200 billion versus estimates of $195 billion.
August
retail sales were up 0.4% versus forecasts of up 0.2%; ex autos, they were flat
versus +0.1%
August
export prices declined 0.6% versus consensus of -0.2%; import prices fell 0.5%
versus -0.4%.
International
July
Japanese industrial production was up 1.3%, in line; capacity utilization was
up 1.1% versus 1.0%.
The
July EU trade surplus was E24.8 billion versus expectations of E17.4 billion.
August
German wholesale prices were off 1.1%.
Other
Banks
lower consumer credit score requirements (shades of 2006/7/8).
Rising
productivity?
Wealth
distribution in the last twenty years.
What
I am reading today
How to make your
retirement savings last longer.
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