The Morning Call--Be Careful
The Morning Call
9/6/19
The Market
Technical
The Averages (26728, 2976) soared yesterday, closing above their 100 DMA’s for the second day (now resistance, if they remain there through the close today, they will revert to support) and the upper boundaries of their August 5th trading ranges (if they close above those boundaries today, those ranges will be voided). They also finished above their 200 DMA’s and in uptrends across all timeframes. Volume was up (but not by much); and breadth improved. Assuming follow through today, the only negative is that both of the indices made gap up opens---which will have to be closed.
The VIX fell another 6 1/8 %, ending below its 200 DMA (now support; if it remains there through the close next Tuesday, it will revert to resistance). However, it closed above its 100 DMA and above the lower boundary of its August 5th trading range (inversely related to the August 5th trading range for the Averages). That is another slight negative for stocks.
The long bond was down 1 ¾ % on heavy volume. However, it remained above both MA’s and in uptrends across all time frames. It also had a gap down open---which will need to be closed.
The dollar was up fractionally but not enough to fill Wednesday’s gap down open, It finished above both MA’s and in short and long term uptrends.
Bond Flood Continues As Companies, Including Apple, Sell $56 Billion In Debt In Two Days
GLD got clocked 2 ½ % on heavy volume and created a gap down open. Nonetheless, it ended above both MA’s and in very short term and short term uptrends.
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 appear to be resolving their August 5th trading range to the upside. If we get the follow through today, then equities will regain some upside momentum.
The pin action of in long bond and gold was terrible; but I am hesitant to assume that their strong performance is because of a trade tweet (see below).
Thursday in the charts.
Stocks & Bond Yields Surge On "Resumption Of Trade-Talks", Silver Slammed
Is this normal?
These Are Not Signs Of A Healthy Market
Fundamental
Headlines
Lots of data yesterday and it was all over the block: the August ISM nonmanufacturing index was the best number of the day; while August light vehicle sales were up slightly. On the other hand, the August services and composite PMI’s were below estimates. Further, (1) the August ADP private payroll report was a plus but weekly jobless claims were a negative, (2) Q2 nonfarm productivity was positive but unit labor costs were not, (3) July factory orders were strong but ex transportation they were weak.
Finally, the Atlanta Fed’s GDP Now report estimates real Q3 economic growth at 1.5%, down from 1.7%.
Overseas, July German factory orders and its August construction PMI were very disappointing; and August UK new car sales declined but less than estimates.
The main headline of the day was another turn in the on again/off again US/China trade talks---now they are on again for some time in October. That said, I don’t think the odds of some agreement that would be a plus for the US has changed one iota. In my opinion, the Chinese are staging this event so that there will be no negative headlines during the upcoming October communist party 70th anniversary bash. Clearly, I could be dead wrong.
***overnight, Bank of China reduces bank reserve requirements.
China Cuts Required Reserve Ratio Releasing $126BN In Liquidity; Yuan Surges
The tariff waiting game.
The US/Japan trade agreement,
The US-Japan trade agreement: A major advance for US-led digital trade rules
Below the centerfold, investors are anticipating the upcoming FOMC meeting (rate cut).
WSJ ‘Fed whisperer’ suggests that the upcoming rate cut will only be 25 basis points.
WSJ Kills Hopes For A 50bps Fed Rate Cut In Two Weeks
Fear on negative interest rates.
Someone else has realized that the Fed is in a corner and there is no way out.
The Fed's Between The Rock And The Hard Place
Bottom line: while investors (algo’s?) were clearly thrilled with the US/China trade developments, as I noted above, I think their optimism severely misplaced: (1) the Chinese are just calming the waters until their anniversary party is over and (2) I can’t imagine why the Chinese would make any concessions until after the 2020 elections [if ever]. Hence, I will not be chasing stocks, even those that are in their Buy Value Range.
The end game (must read):
August dividends by the numbers.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
July factory orders rose 1.4% versus consensus of 1.0%; ex transportation, they were up 0.3% versus expectations of up 0.7%.
August US light vehicle sales increased slightly from July.
https://www.calculatedriskblog.com/2019/09/bea-august-vehicles-sales-increased-to.html
The August services PMI was reported at 50.7 versus estimates of 51.0; the composite PMI was 50.7 versus 50.9.
The August ISM nonmanufacturing index came in at 56.4 versus forecasts of 54.0.
August nonfarm payrolls rose 130,000 versus projections of 158,000; the unemployment rate was 3.7%, in line.
International
July Japanese household spending fell 0.9% versus expectations of -1.3%; cash earnings declined 0.3% versus +0.2%; leading economic indicators came in at 93.6 versus 93.2.
July German industrial production was down 0.6% versus consensus of +0.3%.
Q2 EU estimated growth rate was 0.2%, in line
Other
Japanification: the fear of global malaise is spreading.
https://www.ozy.com/fast-forward/japanification-investors-fear-malaise-is-spreading-globally/96469
US seeking Tehran meeting.
More of ‘your tax dollars at work’.
What I am reading today
Five facts about the earth’s climate.
https://www.zerohedge.com/news/2019-09-05/5-surprising-scientific-facts-about-earths-climate
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