The Morning Call
8/17/20
The
Market
Technical
The S&P went
through some consolidation last week.
The good news, it remained in a very narrow range. The bad news is that this is occurring at a
major resistance level (its all-time high), it has made two small gap up opens
that need to be filled and breadth is overbought. Short term, I think more consolidation is in
store; but long term, I think the bias is still to the upside.
The long bond did
a lot more than just consolidate last week.
It fell out of the uptrend off its June low. And it traded below its 100 DMA (now support;
if it remains there through the close today, it will revert to
resistance). On the other hand, it
finished within uptrends across all timeframes.
Clearly, a successful challenge of its 100 DMA would raise the question
of a potential change in trend. It is
too soon to make that call; but it has now become a possibility.
Gold also had a
tough week. However, it (1) remains
above both DMA’s and in uptrends across all timeframes and (2) you can see a
major gap down open that needs to be filled.
The trend remains up.
Buffett buys
Barrick Gold.
The dollar remains
in an easily identifiable (short term) downtrend. You can see the lower boundary (purple line)
of its intermediate term at the bottom of the chart. So. it is not that far from challenging
another major uptrend. In addition, it
is below both DMA’s. My assumption is
that the dollar is going lower. On the
other hand:
‘Dollar short’ is
now the consensus trade.
https://www.zerohedge.com/markets/short-dollar-now-worlds-most-consensus-trade-so-its-time-go-long
The VIX is a
mirror image of the S&P---as it should be.
But surprisingly of late, this measure of volatility (investor
uncertainty) has not been as volatile to the downside (doesn’t reflect the extent of investor
uncertainty) as the price movement in the S&P would suggest.
VIX at 46? (must
read).
https://www.zerohedge.com/markets/vix-46-part-2
Friday in the
charts.
https://www.zerohedge.com/markets/gold-slips-most-march-stocks-see-best-100-day-run-ever
Fundamental
Headlines
The
Economy
Review of last week
The data (and
primary indicators) last week was upbeat again.
Overseas the stats turned positive.
That is good news given the recent sluggishness in both sets of
numbers. The one concerning datapoint
that bears mentioning is the marked uptick in inflation both here and
abroad. Of course, one month’s readings
don’t make a trend. Nonetheless, if
these stats portend the long awaited rise in inflation, then the long term
trends in equities, bonds, gold and the dollar are about change.
Short term, the
economic recovery continues though its somewhat erratic nature leaves its shape
(V, U, W, L or a swoosh) in question.
Longer 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 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.
Low interest rates
are not stimulus (must read):
So, what are
higher rates?
https://www.zerohedge.com/markets/chart-day-china-about-unleash-inflationary-tsunami-us
US
The August housing
market index was reported at 78 versus consensus of 73.
https://www.zerohedge.com/markets/homebuilders-have-never-ever-been-more-confident
The August NY Fed
manufacturing index came in at 3.7 versus expectations of 15.
International
June Japanese
industrial production was up 1.9% versus estimates of up 2.7%.
Other
Transpacific shipping rates soaring.
https://www.zerohedge.com/markets/trans-pacific-going-crazy-demand-defies-pandemic-pessimists
Bankruptcies at ten year high.
The
coronavirus
***overnight update
More evidence that hydroxychloroquine works.
Central
Banks
The ECB is the wrong model.
https://www.zerohedge.com/bailout/massive-stimulus-does-not-prevent-eurozone-slowdown
China
Scheduled review of US/China phase one trade
deal postponed.
US hammers Huawei with new restrictions.
Bottom
line. Whatever the timing of a vaccine, however
receptive the population is to inoculation, however fully the economy returns
to pre-coronavirus levels, the economy will still be stuck with trillions of
new government debt that has to be financed and a Fed which almost surely will
slow the rate of expansion of its balance sheet if not reverse it. And, in the absence of a meaningful decline
in equity prices, the Market will have to reconcile the current excesses in
valuation with impact of slowing secular economic growth, a global financial
system saturated with liquidity and their effects on earnings growth and
inflation.
There is no margin
of safety in the pricing of stocks today.
In an ‘everything rally’
there is no place to hide.
https://www.zerohedge.com/markets/everything-rally-diversification-new-four-letter-word
News on Stocks in Our Portfolios
FactSet Research Systems (NYSE:FDS) declares $0.77/share quarterly
dividend, in line with previous.
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.
No comments:
Post a Comment