The Morning Call
9/26/18
Sorry for the radio silence. My internet modem blew out in a storm last
Friday. ATT couldn’t get me a new one
until yesterday.
The
Market
Technical
While the
Averages (DJIA 26492, S&P 2915) have had a couple of down days, they remain
technically very strong. Yesterday, volume
was down and breadth fell, not surprising having traded into overbought
territory. My assumption is that they
will challenge the upper boundaries of their long term uptrends (29807, 3065).
The VIX was up
on the day. Last Friday, it touched the
lower boundary of its short term trading range, then bounced on Monday. Though it remains below both moving averages. I remind you that of late it has been trading
in a confusing, atypical non-inverse relationship with stocks. I am not sure what to make of this pin
action; but added to the rumblings in the bond market and a sudden downturn in
the dollar, it seems to me that investors may be re-gearing their
economic/Market models. We need more
follow through; but we also need to be aware that big changes may be in the
works.
The long bond
was down, finishing below both moving averages, in a newly reset very short
term downtrend and within its newly reset long term trading range. More downside seems to be in the works with
the lower boundary of its intermediate term trading range as the first
objective to overcome. I continue to
think the break of TLT’s long term uptrend is a significant event from both a
technical and fundamental standpoint.
The dollar has
reset its very short term trend to down and is struggling to remain above its
100 DMA. I am a bit confounded by this
recent weak performance viz a viz that of TLT. As I noted above, with a number
of confusing or technically negative price movements now taking place, I am not
sure what is occurring with investor
economic/Market models---if in fact anything is happening other than an excess
of noise.
GLD was up again, but is
still the ugliest chart on the block---though it does seem to be trying to
build a base.
Bottom line: the indices
remain technically strong. I continue to believe that they will challenge the
upper boundaries of their long term uptrends.
The pin action in the long bond, the
dollar, the VIX and gold are all acting somewhat atypical. That doesn’t necessarily mean something
negative is occurring. It is just that a
change seems to be in the air; and I think we need to be alert to it.
Yesterday in the
charts.
Fundamental
Headlines
To
be sure that you are up to date, I rated last week’s economic stats
neutral. Score: in the last 154 weeks,
fifty-one were positive, seventy-one negative and thirty-two mixed.
Yesterday’s
data was all positive: month to date retail chain store sales, the September
Richmond Fed manufacturing index and September consumer confidence were a plus
(though I urge to read the analysis of the latter linked below) while the July
Case Shiller home price index was in line.
There
are lots of economically significant events taking place:
(1)
in trade: China/US cancel talks; South Korea/US sign
new trade agreement. Mixed news.
***overnight, China cut tariffs on 1,500+ items
(2)
the Fed: the FOMC
meeting yesterday and today.
The Fed’s absurd debate over inflation (medium and today’s must read):
https://www.zerohedge.com/news/2018-09-24/rethinking-feds-2-inflation-target-spotlight-absurd-debate
(3)
the continuing dollar funding problems: Argentine peso
and the Hong Kong dollar falling.
And:
Bottom
line: notwithstanding the three ring circus in our capital, I continue to
believe that the federal deficit/debt and the willful blindness of the Fed to
its own ineffectiveness are the problems that investors have to contend
with. And I can’t see any solutions in
the future. Of course, that doesn’t
matter because right now investors’ emphasis is on accentuating the
positive.
So my choice is
to take money off the table when one of my stocks trades into its Sell Half
Range or hold and hope that I am smart enough to know when the top has been
made. That makes it easy because I know
that I am not smart enough to know when the top has been made.
As a reminder, this
doesn’t mean I am liquidating my portfolio nor that purchases aren’t be made
when stocks enter their Buy Range (i.e. purchases of Ralph Lauren, Gilead
Sciences, William Sonoma, Tractor Supply and Schlumberger in the last year).
Valuing
equities for the long term (medium):
News on Stocks in Our Portfolios
Revenue
of $9.95B (+9.7% Y/Y) beats by $10M.
Economics
This Week’s Data
US
(catching
up)
The
August Chicago Fed national activity index was reported at 18 versus
expectations of 20.
The
September Dallas Fed manufacturing index came in at 28.1 versus forecasts of
31.2.
Month
to date retail chain store sales grew faster than in the prior week.
The
September Richmond Fed manufacturing index was 29.0 versus estimates of 20.0.
The
July Case Shiller home price index for 0.1%, in line.
September
consumer confidence was 138.4 versus consensus of 131.7
Weekly mortgage
applications rose 2.9% while purchase applications were up 3.0%.
International
Other
An
ECB official said that the central bank was considering tightening monetary
policy sooner than originally planned.
Interest
rates in Hong Kong are soaring as the cheap dollar carry trade gets hammered.
Trillion
dollar deficits in an age of prosperity (medium):
Trends
in the cost of health care insurance (short):
The
fallout of QE on pensions (medium):
The
impact that the global economy has on Fed policy (medium):
What
I am reading today
How to retire when you
are starting from scratch at age 50 (medium):
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