The Morning Call
The Averages (26135, 2923) had another good day. Volume was down again; though breadth improved. The Dow ended below its 100 DMA (now resistance) and above its 200 DMA (now support; voiding Wednesday’s break). The S&P ended back above its 100 DMA once again. This is the sixth time it has crossed this level in the last eleven trading days. I thought this see saw action was over; clearly, I was wrong. So, I am again withholding a support/resistance call. It finished above its 200 DMA (now support). Both of the indices ended above the upper boundaries of their developing very short term downtrends. If they remain there through the close today, those downtrends will be voided.
The VIX fell another 8 ½ %, but still finished above both MA’s (now support). However, it finished below the lower boundary of it very short term uptrend; if it remains there through the close today, that trend will be voided.
The long bond was down 1 ½ %, but remained above both MA’s, in uptrends across all timeframes. It continues to be overextended, though it did manage to close one of its gap up opens.
The dollar rose ¼%, ending in short and long term uptrends and above both MA’s.
Gold declined 1 ¼ %, but closed within very short term and short term uptrends and above both MA’s. However, it still has the gap up open from two weeks ago which needs to be closed. And like TLT, it remains overbought.
Bottom line: long term, the Averages are in uptrends across all timeframes; so, the assumption is that they will continue to advance. Short term, they are challenging several resistance level. If successful, that would point to further gains on the upside.
The pin action in the long bond, the dollar and gold continues to point at the need for a safety trade.
Monday in the charts.
No US data releases. Overseas, there were two stats: the July Japanese trade deficit and the July EU CPI were disappointing.
Investor attention yesterday was focused on:
- weekend developments [Trump delayed penalties on Huawei, Germany prepared stimulus measures and China lowered interest rates]. I covered these items in yesterday’s Morning Call,
The trade war is over; Trump just doesn’t realize it yet.
***overnight, Markets underwhelmed with Bank of China’s rate reduction.
***overnight, Trump approves F-16 sales to Taiwan.
- Fed driven headlines this week:
[a] the minutes from the last FOMC meeting will be released on Wednesday,
[b] the Jackson Hole meeting and Powell speech later in the week.
New Fed ‘buffer tool’ is a joke.
Bottom line: both the Trump ‘put’ (generating positive economic/trade headlines) and the Fed ‘put’ (promising ever more easy monetary policy) will receive more tests this week. Last week’s lack of follow through to the Trump announcement to the delay in imposing tariffs is a hint that Trump ‘put’ could be losing its humph. And as you know, I have been suggesting that the recent pin action in bond, dollar and gold markets are calling the latter into question. Notice I am not making that call (‘hint’, ‘suggesting’). But the risk of those two ‘puts’ losing their effect is rising; and if it does, the stock market will have a problem.
The latest from Morgan Stanley.
A transportation recession has already arrived.
News on Stocks in Our Portfolios
Medtronic (NYSE:MDT): Q1 Non-GAAP EPS of $1.26 beats by $0.07; GAAP EPS of $0.64 misses by $0.24.
Revenue of $7.5B (+1.5% Y/Y) beats by $100M.
Home Depot (NYSE:HD): Q2 GAAP EPS of $3.17 beats by $0.09.
Revenue of $30.84B (+1.2% Y/Y) misses by $140M.
Genuine Parts (NYSE:GPC) declares 0.7625/share quarterly dividend, in line with previous.
This Week’s Data
June EU construction output rose 1.0% versus consensus of +1.8%.
July German PPI was +0.1% versus estimates of 0.0%
August UK industrial orders index was -13 versus forecasts of -23.
The probability of recession by August 2020.
Notes from Cap Kotok.
The failed promises of the 2017 Tax Cut and Jobs Act.
What I am reading today
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Disclosure: I am/we are long gpc, hd, MDT.