The Morning Call
8/3/26
The
Market
Technical
A real roller
coaster of a week saw the S&P push above its 50 DMA (if it remains there
through the close today it will revert to support) and the upper boundary of
that very short term downtrend. Is the worst over? Perhaps. As always, follow
through is the key. Certainly, Friday’s pin action raises the prospect that the
worst is over. And don’t forget that the index is now above all three DMAs and
in uptrends across all timeframes. That said, August through mid-November has
historically been the worst time period for stock performance. Plus the disgruntlement
in the bond market is not likely to help. I remain cautious.
Risk
appetite wavers.
https://www.capitalspectator.com/risk-appetite-wavers-while-the-fed-plays-it-calm/
The long bond continued
its dismal performance---not surprising given oil prices (the war), the
prospect for a new round of tariffs, the ruling class drunk on deficit spending
and Warsh’s performance at his virgin FOMC presser. There is nothing occurring that
changes my opinion that TLT is going nowhere---except further
down. What we know technically is that TLT is below all three DMAs and in
downtrends across all timeframes; so for the long bond to rise enough to even
challenge the upper boundary of its very short term uptrend, I think that it is
going to take a series of positive developments.
GLD remains in a well-defined
downtrend. It is below all three DMAs and continues to play with the lower
boundary of its short term uptrend. If the challenge proves successful, the
next visible support level is the lower boundary of its intermediate term
uptrend---which is quite away aways.
Despite UUP’s dismal performance
on the week, it still held that very short term uptrend---although it is now
challenging its 50 DMA. Of course, on a longer term basis, the dollar remains
in no man’s land and at this point I see like prospect of its breaking out of
even its short term trading range. Technicals aside, a spendthrift ruling
class, higher oil prices and a weak kneed Fed is all the explanation one needs
to understand where it is trading.
Friday in the charts.
https://www.zerohedge.com/markets/blood-streets-tech-wrecks-bonds-battered-crude-catapults-july-jolt?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTE5OTgzIiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc4NTUyOTg1OSwiZXhwIjoxNzg4MTIxODU5LCJhdWQiOiJ6aC1naWZ0In0.-MBAQQzDCshJOtwaFv6oeHV_F7_TvnM-VsLBg9c_cWw
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
What is the VIX missing?
https://www.zerohedge.com/the-market-ear/what-vix-missing?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTIwMTY3Iiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc4NTc2MjAwOSwiZXhwIjoxNzg4MzU0MDA5LCJhdWQiOiJ6aC1naWZ0In0.-1NN4d83ILaajk7kxFTYUy2YHVbJJtgbEXJecxSye7A
Monday morning
setup: Futures are higher with both tech and small caps outperforming as Trump
points to a deal/advanced discussions with Iran (which Iran is naturally
denying), which is helping push energy prices and bond yields lower as the USD
depreciates. As of 8:00am ET, S&P futures are up 0.5% while Nasdaq futures
rise 0.4% led by Mag 7 stocks higher with Semis lagging. Energy is lower with
the remaining sectors seeing a bid pre-mkt as the lower oil / bond yields are
creating what JPM hopes will be an ‘Everything Rally’. Though the Kospi against
tumbled overnight, EWY is +1% pre-market. Samsung Electronics and SK Hynix
plunged nearly 9% each, while TSMC fell more than 2%, following their record
surge on Friday. The yen rallied sharply before paring most of the gain amid
speculation that authorities may have intervened to prop up the currency again
after coordinated action between the US and Japan last week. Bloomberg’s gauge
of the dollar fell 0.1%. WTI is under $80/bbl dragging the Energy complex
lower as we see this move boosting both Base and Precious Metals with Ags
lower. Today’s macro data focus is opn the final July reading of S&P
Global manufacturing PMI due at 9:45 a.m. ET, followed by ISM manufacturing for
July and construction spending for June at 10 a.m. Omdia total vehicle sales
are due through the day. In premarket trading, Mag 7 stocks are mostly
higher: Amazon (AMZN) rises 1.6% as the e-commerce and cloud-computing
company is set to extend gains after reporting cloud revenue acceleration for a
fifth straight quarter (Alphabet +1.7%, Microsoft +1.8%, Meta +1.6%, Tesla
+0.6%, Apple +0.6%, Nvidia -0.3%)
Fundamental
Headlines
The
Economy
The
US stats were disappointing last week. They included one neutral and three
negative primary indicators and one plus, one neutral and one minus inflation
measure. Overseas, the data was balanced with two neutral and one negative
inflation datapoints.
While
the US data did not make for an optimistic read, one week’s numbers do not a
trend make. Plus the poor GDP read (a primary indicator) was chiefly due to the
trade and inventory data. So at this point, I am not concerned.
Inflation,
of course, has been and remains my big worry. Last week’s better reading was principally
due to lower oil prices---which has since changed. Plus, there is now higher
tariffs to factor into future inflation readings. Most important, the bond
market is clearly warning us that inflation remains a concern. So, my outlook
there hasn’t changed either.
Speaking
of inflation, last week’s FOMC meeting and more importantly, Warsh’s subsequent
presser was clearly a disappointment to the bond investors---at least those
that believe inflation is a problem and a more hawkish Fed needed. I noted last
week that Warsh appearance was unfortunately reminiscent of the three past generations
of Fed heads---talking tough and doing nothing. Many experts believe that he will
correct that mistake in short order. Let’s hope. But let’s also not forget who
appointed him and what his expectations are.
https://www.carsongroup.com/insights/blog/the-feds-going-to-let-it-run-hot-until-they-dont/
There
are three other issues that remain front and center in their impact on the
economy (and Market):
(1)
the economics of oil whether or not there is peace tomorrow. Global reserves
are near operational depletion and more of the oil refining infrastructure has
been destroyed. It seems wildly optimistic to me to believe that this won’t
continue to produce inflationary pressures on global economy,
(2)
the economics of fiscal policy---which is an abomination. The irresponsibility
and lack of concern by our ruling class, spending trillions with no plan
[anyone telling you that tariffs are the answer is smoking dope] to address the
issue is stunning. I can see the merit in John Tamny argument that the gluttonous
spending keeps them from spending more. But given the current level of
spending, I am not sure that if the absence of spending more means that interest
rates and inflation will somehow be lower.
(3)
the economics of AI. Here I have a whole less confidence in my views. As much
as I have read, I still don’t understand with any degree of certainty the
economics of the current AI spending. That doesn’t mean that all the hopes and dreams
of the participants won’t come to fruition. It just means that I don’t have a
lot of confidence in the outcome. Suffice it to say that the enormous current
and forecasts spend had better pay off or the economy and the Market are in for
some serious indigestion.
https://www.advisorperspectives.com/commentaries/2026/07/31/hyperscalers-earn-ai-ambitions
What skeptics get right and
wrong about AI.
https://talkmarkets.com/article/ai-bear-case-what-skeptics-get-right-and-wrong-1785501494
The
optimistic view, though it says nothing about the economics.
The
economics of inflation.
https://mrzepczynski.blogspot.com/2026/07/the-failure-of-forward-guidance-or-what.html
Bottom
line: the economy continues to grow despite the ruling class’s best effort to
sabotage it while inflation remains well above the Fed’s target. There are
plenty of storm clouds, so caution is needed.
US
International
June German retail sales fell 1.1% versus
consensus of down 0.5%.
The July Japanese
manufacturing PMI came in at 54.5 versus projections of 54.7; the July German
manufacturing PMI was 52.2, in line; the July EU manufacturing PMI was 51.9
versus 52.0; the July UK manufacturing PMI was 51.9 versus 52.8.
Other
July business cycle indicators.
https://econbrowser.com/archives/2026/07/business-cycle-indicators-at-end-july
Iran
Overnight news.
Another TACO headline?
Fiscal
Policy
Government
ownership of companies is becoming routine.
https://www.cato.org/blog/government-ownership-stakes-companies-becoming-routine-under-trump
Investing
Second quarter earnings hitting on a cylinders.
The short seller fairy tale.
(4) Leopold
Aschenbrenner’s Short Seller Fairy Tale
Investors should brace portfolios from tech
volatility.
https://giftarticle.ft.com/giftarticle/actions/redeem/1a818e58-b63f-454d-99bf-376ba431d380
The new ‘crash puts’.
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