Wednesday, August 19, 2015

The Morning Call- Government rescues Chinese market---again

The Morning Call

8/19/15

The Market
         
    Technical

The indices’ (DJIA 17511, S&P 2096) three day advance stalled yesterday. The Dow still ended [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] in a short term trading range {17385-18295}, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5369-19175}.

The S&P finished [a] right on its 100 day moving average, negating yesterday’s break, [b] as well as the upper boundary of a very short term downtrend, [c] within a short term trading range {2043-2135} and [d] within an intermediate term uptrend {1889-2651} and a long term uptrend {797-2145}. 

Volume was up slightly; breadth was negative.  The VIX was up 6%, but remained below its 100 day moving average and within a short term trading range, an intermediate term downtrend and a long term trading range.

The long Treasury fell, ending [a] above its 100 day moving average, now support, [b] within short and intermediate term trading ranges and [c] back below the lower boundary of a very short term uptrend; if it remains there through the close today, that trend will be negated.

GLD was down fractionally, closing below its 100 day moving average and in short, intermediate and long term downtrends.  However, it continues to develop a very short term trading range.   That is no reason to go Buy GLD, but it could potentially be signaling that a bottom is being made.

Oil managed to lift a bit, but still finished below its 100 day moving average and within short and intermediate term downtrends. The dollar rose, closing back above its 100 day moving average; if it remains there through the close on Friday, it will revert from resistance to support.  It is also within short and intermediate term trading ranges. 

Bottom line: the S&P voided Monday’s challenge of its 100 day moving average and its very short term downtrend, leaving it and the Dow synced to the downside---or at least starting to resync to the downside.  Of course, it closed right on those aforementioned boundaries; so that judgment is a day to day thing right now. Nevertheless, it does illustrate just how difficult it is at this time get any kind of momentum to the upside.

This is not a technical environment in which I would be buying stocks.  Indeed, any move higher in prices I believe represents a gift to allow investors to sell.

TLT is challenging its very short term uptrend.  Any substantive break would suggest the no Fed rate hike and/or a weakening economy crowd is losing support.  Plus I am sure it reflects an article by John Hilsenrath the said the Fed would raise rates in September.

    Fundamental

        Headlines

            Yesterday’s US economic news was tilted a bit to the negative: July housing starts were up fractionally, but building permits were down much more than anticipated; month to date retail chain store sales grew at a slower pace than the prior week’s reading.

            Overseas, the Chinese stock market got clocked again along with the yuan, though ultimately the Chinese government intervened to help the yuan.  Other bad news included an EU official stating that Greek bank deposits would no longer be guaranteed after 1/1/16. That, of course, is one guy’s statement, not a matter of policy.  But still nothing to inspire enthusiasm.
             
China’s problems are not going away (medium):

            But how much will they impact the US (medium):

            ***overnight, China stock market sells off another 5% before government intervenes, closes up 1.2%; the German parliament approves Greek bailout; emerging markets experiences $1 trillion in capital outflows over the last 13  months.

            The minutes from the last Fed meeting will be released today which could serve as an appetizer to the September Fed meeting, especially if there is any clarity provided versus the current dribble of thin gruel coming out of FOMC participants.
           
            Fed whisperer Hilsenrath suggests a September rate hike (medium):

            St Louis Fed confirms what we knew all along: QE doesn’t lead to inflation or economic growth but impact Markets (medium and today’s must read):

Bottom line: optimists notwithstanding, the US economic news is just barely OK; in particular, if you factor in the flow of poor anecdotal numbers.  Yes, the economy appears to still be growing but nothing to get jiggy about.  Ordinarily, that would satisfy most investors that a recession is off the table; but the dataflow from abroad keeps getting worse whether it is from China, Japan, the EU or the emerging markets.  So it is difficult for me to accept that the US can continue to grow in the face of a global slowdown.  It could happen; and indeed, that is our forecast.  But the odds of this scenario prevailing are shrinking.

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.

            Second quarter revenue and profit review (short):

    
Economics

   This Week’s Data

            Month to date retail chain store sales grew at a slower pace than the prior week.

            Weekly mortgage applications rose 3.6% while purchase applications fell 1.0%.

            July CPI was reported at up 0.1% versus expectations of up 0.2%; ex food and energy, it was up 0.1% versus estimates of up 0.2%.  If you are Janet Yellen, is this good news or bad news?

   Other

            The problem with the BRICS (medium):

            The Atlanta Fed doubles its third quarter GDP growth estimate (short):

Politics

  Domestic

The continuing decline in teaching and grading standards in our schools (medium):

Some thoughts on inequality (medium):

The social security scam (short):

  International War Against Radical Islam







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