The Morning Call
8/29/22
The
Market
Technical
The S&P didn’t
hesitate in taking out the 100 DMA (now resistance). You can clearly see the
next stop---the intersection of the initial 38.2% Fibonacci retracement level
and the lower boundary of the S&P’s intermediate erm uptrend (~3817). That
level should provide solid support. However, if it fails, there is only minor support
at the initial 61.8% Fibonacci level (~3198) and nothing after that until the
prior March lows (~2196). But it is way too soon to start worrying about that.
Still, this is not a time to be buying.
Moving
average sell signals.
https://www.advisorperspectives.com/dshort/updates/2022/09/02/moving-averages-s-p-down-4-2-in-august
The
long bond is once again challenging the lower boundary of its intermediate term
trading range. If it remains there through the close on Wednesday, it will reset
to a downtrend. As I noted last week, that TLT has not already taken this trend
out speaks to the credibility of the Fed’s (Powell’s) vow to stay the course
until the inflation dragon is slain. If investors have become believers, then
there is likely more downside. Note, however, last Thursday’s gap down open
which needs to be closed before much more downside can be achieved.
Global
bonds tumble into a bear market.
Gold
remains in that eighteen month trading range. It is at the lower end of that
range and has the lower boundaries of both its intermediate and long term
uptrends still as support. However, with the dollar continuing to rocket higher
and the long bond on the verge of breaking down, I can’t come up with a good
reason to assume higher gold prices.
Nothing
new. And I am sticking with my story---in a highly unpredictable global
economy, everyone wants to own the dollar.
What’s
behind the dollar’s strength.
Friday in the charts.
https://www.zerohedge.com/markets/putin-kills-goldilocks-stocks-puke-gas-cuts-trump-job-gains
Signs that the
bottom may not be in.
https://www.zerohedge.com/markets/6-out-10-signs-say-market-bottom-not-yet
Are we in for a short
term bounce?
https://www.zerohedge.com/the-market-ear/aroundhere
Fundamental
Headlines
The
Economy
Review last week
The
US data last week were very positive (although the primary indicators were
mixed, 1,1 and 1). That said, if you believe the Fed (i.e., it is prepared to
fight inflation to the death)---and that is a big ‘if’---then the better the
economic news, the tighter will be monetary policy. That may be good for fighting
inflation but probably not so good for the Market.
So,
the issues remain the same:
1. how
deeply embedded is inflation in our economy?
2. given
the answer to 1., how firm will the Fed remain in its policy decisions to bring
the inflation rate back to acceptable levels?
As I noted previously,
there are enough signs that inflation has peaked to consider it a real possibility.
However, as I have also noted, that really doesn’t address the answer to how
deeply embedded it is. The issue is not
peak inflation, the issue is what has to occur to return to a ~2% regime.
In other words,
what is the answer to #2 above. Despite Powell’s very hawkish Jackson Hole
comments, neither he nor his compatriots on the FOMC have a sterling record of
consistency or toughness---which as you know, has been a persistent complaint
of mine for the last 20 years. Given that lack of consistency and fortitude, I think
it would be too big a leap of faith to assume that Powell et al have found religion
and will hold firm in the face of a faltering economy and plunging asset
prices.
In short,
there is almost no good reason to make any assumption yet about how deeply embedded
inflation is and less reason to suppose the Fed has the cojones to deal with a
worst case scenario. Patience remains a virtue. Sitting on the sidelines is a
pro-active strategy.
Here is a refreshingly
different take on the economy.
https://alhambrapartners.com/2022/09/01/goldilocks-calling/
US
International
July EU retail sales
grew 0.3% versus predictions of +0.4%.
The
August German services PMI was 47.7 versus estimates of 48.2; the August German
composite PMI was 46.9 versus 47.6; the August EU services PMI was 47.8 versus
50.2; the August EU composite PMI was 48.9 versus 49.2; the August UK services
PMI was 50.9 versus 52.5; the August UK composite PMI was 49.6 versus 50.9.
August
Japanese household spending fell 1.4% versus forecasts of -0.6%; August YoY
average earnings were up 1.8% versus +1.9%.
The
August EU construction PMI was 44.3 versus consensus of 46.1; the August German
construction PMI was 42.6 versus 44.5; the August UK construction PMI was 49.2
versus 48.0.
Other
Bottom line
Are valuations
still too high?
https://www.capitalspectator.com/us-stock-market-valuation-normalizes-slowly/
The next shoe to
drop.
https://www.zerohedge.com/markets/wall-streets-most-accurate-analyst-next-shoe-drop-will-be
More earnings
decline is in the offing?
https://www.zerohedge.com/markets/earnings-decline-likely-more-go-we-are-done
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