Wednesday, October 2, 2019

The Morning Chart--The on-again global recession

The Morning Call


The Market

The Averages (26573, 2940) got caught off balance yesterday by the poor ISM manufacturing index.  Volume picked up---but not all that much; as you might expect, breadth was poor.  The VIX popped 14 ½ % ending back above its 200 DMA (now resistance; if it remains there through the close on Friday, it will revert to support) and  above its 100 DMA for the third day, reverting to support.  The S&P closed its 9/4 gap up open, while the Dow needs to decline a bit more to also fill its comparable gap up.   My directional assumptions remain that short term the 9/4 gap up opens need to be filled and that looks to be occurring.  That will relieve the drag on the indices to the downside and set the stage for a resumption of momentum to the upside.  But, but , but that doesn’t mean that stocks will bounce immediately.

            The long bond up another 1/8% continuing to recover from the 9/4 selloff.  GLD bounced back above the lower boundary of the pennant formation shown in the chart on Monday.  Despite being down 3/8%, the dollar remains in a solid uptrend.  While one day does not a trend make, the safety trade may be returning.

            Tuesday in the charts.
                The latest from my favorite technician.



Yesterday’s economic data tilted to the negative: month to date retail chain store sales grew faster than in the prior week and the September manufacturing PMI was slightly better than expected; however, both August construction spending (primary indicator) and the September ISM manufacturing index were well below estimates.

            Federal debt and the US economy.

            Overseas, August Japanese unemployment, Q3 large manufacturers, small manufacturers, large nonmanufacturers indices were above consensus while the Q3 all industry capex was below; the September German manufacturing index was slightly above projections (though it was still in deep contraction); the September EU core CPI was in line; the September UK housing price index fell and the September EU manufacturing PMI was abysmal.

            World economy sends up flares.

            Japan raises national sales tax.  What could possibly go wrong?

            Bottom line: the economic data was the big story of the day with several major disappointments both here and abroad.  That quickly resurrected the ‘global recession’ scenario.  As you know, this has been an on-again/off-again state of affairs for the last five or six years.  So, it is way too soon to assume that this is anything other than another on-again situation.  Besides, you know this is just fodder for a rate cut at the Fed’s October meeting.  And as long as the Fed can juice the Market, then this latest set of poor stats will not likely lead to a major sell off.  Only when investors realize that the Fed is problem and not the solution will the mispricing and misallocation of assets be corrected.[SC1] 

            Update on valuation.
    News on Stocks in Our Portfolios


   This Week’s Data


            Weekly mortgage applications were up 8.1 while purchase applications were up 0.9%.

            August construction spending rose 0.1% versus estimates of up 0.4%.

            The September manufacturing PMI was 51.1 versus consensus of 51.0.

            The September ISM manufacturing index was 47.8 (that’s contraction) versus forecasts of 50.1.

            The September ADP private payroll report showed an increase of 135,000 jobs versus expectations of 140,000 jobs.


            September Japanese consumer confidence came in at 35.6 versus projections of 37.3.

            The September UK construction PMI was reported at 43.3 versus estimates of 45.0.


            Johnson issues Brexit ultimatum to EU.

            US and North Korea resume nuclear talks.

What I am reading today

            Treasure hunting for 800 barrels of gold.

            Global warming in the charts.

            The IG on the whistleblower report.

            The goal of the new Mars rover.

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