The Morning Call
8/14/15
The
Market
Technical
The indices
(DJIA 17408, S&P 2083) took a breather yesterday after a very volatile
first three days of the trading week.
However, a big change took place in the technicals. The Dow ended [a] below its 100 and 200 day
moving averages, both of which represent resistance, [b] slightly above the
lower boundary of its recently re-set short term trading range {17385-18295},
[c] in an intermediate term trading range {15842-18295} and [d] in a long term
uptrend {5369-19241}.
However, the
S&P finished for the third day below [a] its 100 day moving average, reverting
from support to resistance and [b] the lower boundary of its short term uptrend,
re-setting it to a trading range {2043-2135}. It remained in an intermediate term uptrend (1886-2650)
and a long term uptrend (797-2145).
Volume declined;
breadth was mixed. The VIX was down
fractionally---ending below its 100 day moving average and remaining within a
short term trading range, an intermediate term downtrend and a long term
trading range.
The long
Treasury fell, but still finished above [a] its 100 day moving average, now
support and [b] the lower boundary of its short term trading range. However, it closed right on the lower
boundary of a very short term uptrend, setting the potential that this trend
could be negated.
GLD dropped
slightly, remaining below its 100 day moving average and in short, intermediate
and long term downtrends. However, it ended above the upper
boundary of its very short term downtrend, negating that trend and re-set to a
trading range.
Oil got whacked again,
ending below its 100 day moving average and within short and intermediate term
downtrends. This most recent leg down
has been brutal. We still aren’t seeing
any unmitigated positives. However, the
implications for global deflation are a growing concern.
The dollar fell,
remaining within short and intermediate term trading ranges but below its 100
day moving average for the second day.
If it closes there today it will revert from support to resistance.
Bottom line: the
S&P began the process of re-syncing with the DJIA by reverting its 100 day
moving average to resistance and re-setting its short term trend from up to a
trading range. While clearly this process
can reverse itself at any time, today the evidence on the ground suggests that
a market top has been made. Remain patient but pay close attention
because the technicals are starting to make the Market news.
The long
Treasury traded down, closing right on the lower boundary of its very short
term uptrend; perhaps forming a challenge to the no hike/economic weakness scenario.
Fundamental
Headlines
Yesterday’s
US economic news was mixed in total, though the worrisome data we got earlier this
week on wholesale inventories (up slightly) and sales (down big) was repeated
with business inventories and sales. The
concern being that this pattern generally anticipates a decline in
production. In other news, July retail
sales were ahead of estimates, but ex autos, they were in line. Weekly jobless claims were higher than
forecast. Finally, export and import
prices were both down albeit less than expectations.
Atlanta Fed
lowers its forecast for third quarter GDP growth (short):
Overseas,
the Greek parliament prepared to vote on the recently negotiated bailout
agreement. However, China again held the
spot light as it (1) allowed the yuan to sell off again, but (2) came out later
and indicated that there was no need for further devaluation. Yeh, right.
I don’t need to remind you that these guys lie like a cheap rug. Furthermore, I can’t think of an instance in
which a devaluing country didn’t swear up and down that it wasn’t going to devalue
right up until the moment they did it.
That doesn’t mean that there are more downward adjustments in the yuan
to come; it just means that we have to take such statements with a grain of
salt.
I
should also mention that prior to the initial devaluation, there was general
agreement among the pundits was that the yuan was roughly 10% overvalued versus
the dollar. It is now down about 4% in
the last three days. You do the math.
My
concerns here are that (1) this devaluation process continues, indicating a
weaker Chinese economy than is generally assumed which in turn puts additional
pressures on global growth and the forces of deflation and (2) investors
recognize the new Chinese policy for what it is---a statement that QE doesn’t
work and that the other central banks trumpeting its advantages are full of
s**t.
http://www.zerohedge.com/news/2015-08-13/one-trader-warns-market-realities-were-starkly-exposed-week
***overnight,
(1) the Greek parliament approved the bailout deal, (2) China allowed the yuan
to appreciate [it is now off 3% for the week] and (3) EU second quarter GDP was
up less than anticipated with the three biggest countries [German, France,
Italy] all reporting disappointing numbers,
Bottom line: while
the economic dataflow has been mixed, all I hear from the media is that the
economy looks great. News flash, even if
those numbers are reflective of the economy, it is not great. In addition, there are areas of concern (1)
the steady flow of anecdotal evidence which if it doesn’t reverse, will likely
soon show up in the macro numbers, (2) the mounting signs of deflation [China,
oil, commodities, bond prices] and (3) the overall deterioration of Market
technicals.
I continue to believe
that the key investment strategy today is to take advantage of the current high
prices to sell any stock that has been a disappointment or no longer fits your investment
criteria and to trim the holding of any stock that has doubled or more in
price. They may not be available later
on.
Bubble
worries in commercial real estate (medium):
Investing for Survival
The
worst investment advice ever (short):
News on Stocks in Our Portfolios
Economics
This Week’s Data
June
business inventories grew 0.8% versus expectations of up 0.3%; but sales rose
by only 0.2%.
July
PPI rose 0.3% versus expectations of up 0.2%; ex food and energy, it was up
0.3% versus estimates of up 0.1%
Other
Update
on household debt (short):
The
latest on the Greek bailout (medium):
Politics
Domestic
Update on
student loans (medium):
International War Against Radical
Islam
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