The S&P had quite a week, starting with a gap up open on Monday, resetting its short and intermediate term trends from trading ranges to uptrends and having its 100 DMA crossing above its 200 DMA. All this clearly supports my assumption that the Market’s bias is to the upside. That said, there are some negatives that point to some sort of short term correction: (1) the S&P now has three gap up opens below it that need to be filled, (2) the VIX continues to reflect investor concern and (3) the index’s breadth remains in overbought territory while the rest of the Market weakens.
The long bond had as bad a week as the S&P had good. It has fallen out of the uptrend off its March/June low’s, established a very short term downtrend having made two lower highs and remained below its 100 DMA (now resistance). That said, short term it has that huge gap down open overhead that needs to be filled; and long term, it remains in uptrends across all time-frames. The only way that I can reconcile declining bond prices with rising gold prices and a falling dollar is significantly higher inflation.
As you can see, GLD has been trading in an increasingly narrowing wedge formation. In fact, on Friday, it closed right on the upper boundary of that formation. The new Fed monetary policy and a weakening dollar suggest a break to the upside.
Did I just say, ‘a weakening dollar’?
Technically, the VIX’s chart should look roughly like an upside down S&P/Dow chart. But as I have been pointing out for the last two weeks, it hasn’t. That suggests that there are enough investors that are growing increasingly uncertain/risk averse.
Friday in the charts.
Last Week in Review
The data (and primary indicators) last week was (very) upbeat again, keeping alive the prospects of a ‘V’ recovery, or at least something close. I am not there yet; but the recent improvement in the numbers cannot be ignored. In further good news, the international stats were also positive, which has not been the case for several weeks. Still, I will take good news where I can get it. Let’s hope it continues as it would be a plus for us.
Intermediate term, the economic growth will be influenced by how quickly virus treatments and a vaccine are discovered as well as the permanent impact this disease/government reaction will have on the spending and work habits of the nation.
Whatever the shape of the recovery, I am not altering my belief that long term the economy will grow at a historically subpar secular rate due to the twin burdens of egregiously irresponsible fiscal and monetary policies---which, by the way, are becoming even more egregiously irresponsible as a result of measures being taken by the government and the Fed in dealing with the current crisis.
July YoY Japanese housing starts fell 11.4% versus estimates of -12.5%; YoY construction orders were down 22.9% versus -7.0%.
August Japanese consumer confidence came in at 29.3 versus expectations of 29.0.
The August Chinese manufacturing PMI was reported at 51.0 versus consensus of 51.2.
A quarter of all personal income in the US comes from the government.
Subprime mortgages fall massively delinquent.
Former Fed official warns of double dip.
The fiscal cliff is coming right up.
The social and economic side effects of negative interest rates.
The first US reinfection case.
News on Stocks in Our Portfolios
What I am reading today
Quote of the day.
How to survive when you are the target of an angry mob.
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