The Morning Call
9/12/17
The
Market
Technical
The indices
(DJIA 22057, S&P 2488) surged yesterday.
Volume rose, though not as much as the price move would suggest; however,
breadth was quite strong. Both remain
above their 100 and 200 day moving averages and are in uptrends across all time
frames. The S&P moved through the
resistance offered by its former all-time high, though the Dow fell slightly short. Finally, both gapped up on the open. As I have noted in the past, most technicians
expect those gaps to be filled.
The VIX (10.7) fell
11%, leaving it below the upper boundary of its short term downtrend, below its
100 day moving average (it reverted to resistance on two Friday’s ago, then
traded back above it last Tuesday, back below it on Thursday, back above it on
Friday and now is back below; so this MA is acting more like a magnet than
resistance or support), below its 200 day moving average (if it remains there
through the close on Thursday, it will revert to resistance) and below the
lower boundary of a developing very short term uptrend. The question as to
whether or not the VIX has bottomed clearly remains open.
The long
Treasury fell 1 1/8 % (it gapped down on the open) on volume, but still finished
above its 100 and 200 day moving averages (both support), the lower boundaries
of its short term trading range and its long term uptrend but back below the resistance
level marked by its August high.
The dollar was up
(a gap up), but remained in short term and very short term downtrends and below
its 100 and 200 day moving averages and in a series of six lower lows.
GLD was down (a
gap down), but still ended above the lower boundaries of its short term and
very short term uptrends and above its 100 and 200 day moving averages (both
support).
Bottom line: long
term, the indices remain strong viz a viz their moving averages and uptrends
across all timeframes. Short term, they
challenged the resistance level marked by their August highs---the S&P
succeeding. All the major indices that I
follow experienced gap openings which, technically speaking, tend to get
closed, i.e. price reversals that close those gaps. In addition, yesterday’s price action
notwithstanding, the unambiguous performances of TLT, GLD and UUP continue to
point at a weakening economy. That is not to insinuate anything directionally;
it is just to caution about getting too jiggy about one day’s pin action.
I continue to be
uncomfortable with the overall technical picture.
Fundamental
Headlines
No
US economic data released yesterday---kicking off another slow week except for
Friday. Overseas, Chinese inflation was a
bit hotter than expected.
***overnight,
as of 6/30/17, US national debt topped $20 trillion versus GDP of $19.2
trillion (remember the Reinhart/Rogoff rule); August UK CPI was higher than
estimates; the UN passes watered down North Korean sanctions measure.
The
notable news of the day was the lack thereof.
No North Korean missile shots on Founder’s Day and Hurricane Irma being
a lot less damaging than originally anticipated. To be sure, both are pluses (though I have to
ask if a destructive hurricane is an economic positive, why isn’t a less destructive
hurricane a negative?)
China
cracking down on North Korean banks (medium):
Bottom line: long
term, nothing has really changed regarding the prospects for earnings and
dividend growth because North Korea didn’t fire a missile or Irma was less
devastating that expected. Indeed,
whether less ruinous or not, the Harvey/Irma combo still wiped out billions in
wealth which no amount of government aid or insurance will replace---the money
will just get taken out of electorate’s pocket and handed to someone else. No amount of economic double talk is going to
make the net effect a positive.
So the economy
is still slowing and will be made worse not better by Harvey/Irma. The Fed has still inflated asset prices to
obscene levels and the hurricanes will only make matters worse as they are likely
to give Yellen et al the excuse they need to not do what ultimately has to be
done---normalize monetary policy. I
think it no coincidence that Fischer is jumping ship before the consequences of
this misguided policy come home to roost.
Of course, as long as the global central banks stay easy, the distortions
in asset pricing and allocation can continue.
That is unless a flattening yield curve or a plunging dollar force the
Fed to do the unthinkable.
The
best case for the bulls (medium):
Does
Fischer see the handwriting on the wall? (medium):
BOJ
now owns 75% of all Japanese ETF’s (short):
My
thought for the day: buy low and sell high is an old stock market cliché. But there is truth in it. Opponents, rightfully so, point out that no
one can consistently pick the market lows and market highs. But it is not necessary to pick the bottom
and the top. If one can get in the vicinity
of both, the strategy beats a buy and hold.
A perfect example if the market performance of the last seventeen
years. If an investor had followed the
buy and hold strategy, he/she would barely have achieved a positive annual
return over that period. On the other
hand, if he/she had sold 25% too soon and bought 25% too late in the two and
half market cycles, their performance would have been significantly higher. I suggest that selling today would be much
closer to the top than 25%. Also the
buy/sell decisions are not all or nothing; that is, if half a position is sold,
cash is being built in anticipation of the inevitable price mean reversion but
the portfolio still benefits from any further increase in prices.
Investing for Survival
36
investing truths.
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
August small business optimism index came in at 105.3 versus expectations of
104.5.
Other
OPEC
reports a production drop in August; but remember, these guys lie a lot
(short):
Politics
Domestic
Congress still
can’t see the forest for the trees (medium):
International
Saudi
prince visits Israel (medium):
Major parties in
Italy seeking a parallel currency (medium):
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