8/9/16
The
Market
Technical
The indices
(DJIA 18529, S&P 2180) couldn’t muster any follow through from Friday’s
strong performance. Volume was very low and
breadth was weak. The VIX rose 1%, closing
below the lower boundary of its former short term trading range for the third
day---which typically would warrant a resetting of a trend. However, the last time this happened (mid-July),
it bounced back over the short term lower boundary on the next day and then
proceeded to see saw around that boundary for the next two weeks. You will
pardon me if I remain on the fence on this directional call.
The Dow closed
[a] above rising 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] within a short term uptrend {17508-19244}, [c]
in an intermediate term uptrend {11312-24139} and [d] in a long term uptrend
{5541-19431}.
The S&P
finished [a] above its rising 100 day moving average, now support, [b] above
its 200 day moving average, now support, [c] within a short term uptrend {2051-2290},
[d] in an intermediate uptrend {1917-2519} and [e] in a long term uptrend
{862-2246}.
The long
Treasury was up slightly, ending above its 100 day moving average and well
within very short term, short term, intermediate term and long term uptrends. However, it also finished within a developing
pennant formation (lower highs and higher lows).
GLD fell slightly,
finishing above its 100 day moving average and within short term and
intermediate term uptrends, but reset to a very short term trading range.
Bottom
line: having been unable to generate any
follow through from last Monday’s sell off, the indices couldn’t build on
Friday’s strong rally. That leaves them
in a very narrow trading range dating back to mid-July. That suggests a bull/bear battle at current
levels, though no indication as to who will win. I continue to assume the Market direction is
up until proven otherwise; although I remain bothered by the simultaneous volatility
in the VIX and the bond, gold, oil and currency markets.
Fundamental
Headlines
Yesterday
was pretty quiet. No US economic
data. Overseas, the July Chinese trade numbers
were awful while June German industrial production came in better than
expected.
***overnight,
July Chinese consumer inflation slowed while industrial inflation contracted;
the Bank of India left key rates unchanged; June Italian bad loans grew another
1%; June UK industrial production rose 0.1%, in line.
Perhaps
the most significant event of the day was Trump’s first detailed remarks on his
economic platform which included lower taxes and less regulation---favorite
themes of mine. Unfortunately, not much
was said about less government spending, without which our fiscal problems don’t
get resolved. Still two out of three ain’t
bad.
His
plan scored (medium):
Trump
also pledged to renegotiate NAFTA and withdraw from the TTI. As an advocate of free trade, his positions
have always given me pause. However, to
be fair, one of the problems of the trade treaties that our government has
negotiated in the past is that they contain no ‘recourse’ provisions if one of
the parties cheat. For instance, a
commonly addressed issue in most trade treaties is import duties which are
generally lowered or eliminated. But
many countries simply lower their import duties than raise the value added tax
on the same goods thereby thwarting the intent of the treaty. Now there is no recourse to this action. While Trump hasn’t been specific about the
issues to be addressed in the treaties he wants renegotiated, my guess is that
recourse is likely one of them. If so,
his intent is not as malevolent as I had originally thought.
Bottom line: ‘stocks remain grossly overvalued and would be
so even if our economic forecast called for solid growth. I believe that easy central bank monetary
policy is the key to explaining this phenomenon; but until investors recognize
the damage QE, ZIRP have done (asset mispricing and misallocation), the Market
will remain overvalued. Investors should
use this situation to take some money off the table, either selling a portion
of the positions in their winners or all of their losers or both.’
Eventually,
valuations will matter (short):
Buffett
exits his entire credit default swap position (medium):
My
thought for the day: In both investing and in life, it is not a failing to not
know something; it is a failing to not know that you don’t know it. Equally, it is a failing to think that you
know something just because someone else said that it is so.
Investing for Survival
Staying
disciplined when times are tough.
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
July small business optimism index came in at 94.6 versus estimates of 94.5.
Second
quarter nonfarm productivity fell 0.5% versus expectations of a 0.5% rise; unit
labor costs rose 2.0% versus forecasts of up 1.8% but the first quarter reading
was revised from +4.5% to -0.2%.
Other
A
more positive take on Fed policy (medium):
Jim
Grant on negative interest rates (medium):
What, me worry?
(short):
Politics
Domestic
Caution. This may be offensive to certain audiences
(medium):
More politically
correct absurdity (short):
International War Against Radical
Islam
