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The Morning Call--Quad Witching Today

|Includes: McDonald's Corporation (MCD)

The Morning Call

9/20/19

The Market

Technical

The Averages (27094, 3006) closed mixed yesterday (Dow down, S&P up fractionally). Volume was down (as usual) and breadth turned negative. While they have basically been treading water over the last week, they still finished above both MA’s and in uptrends across all timeframes. So, the assumption is that they will continue to move to the upside---the next major level to be challenged being their all-time highs (27398, 3027). As a reminder, the gap up opens from fourteen days ago still have to be closed.

The VIX was up ¾ %, ending below both MA’s (now resistance) and remaining in (reverse) sync with the Averages. I continue to watch this indicator for any deviation from its (inverse) symmetry with the Averages as a sign of a Market reversal.

The long bond rose 3/8 % and continued to pull away from the recent sharp downward trajectory. It remains above both MA’s and in uptrends across all timeframes. So, the long term trend in rates remains to the downside. And that gap down open fourteen days ago still needs to be filled.

Fed Funds Prints 2.25%, Breaching Target Range, As IOER Spread Explodes

The dollar fell ¼ %, remaining the most stable of the indices. It finished above both MA’s and in short and long term uptrends. However, investors seem unphased by the continuing global dollar shortage problem.

GLD increased 3/8%, trading back near that minor support level that I have been watching since last Friday. It may be trying to build a base at this level---which would a positive. At the same time, it closed above both MA’s, in very short term and short term uptrends. Plus, it still needs to fill the gap down open from fourteen days ago.

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 seem to be stalling at current levels. I don’t see that necessarily as a negative. They are just absorbing the usual supply of sellers as they approach all-time highs.

Stock market's eerie parallels to September 2007 should raise recession fears

The dollar has definitely regained its upward momentum. TLT appears to have halted its downward momentum and is attempting to rebound. The weakness in GLD hasn’t yet dissipated, but like TLT it is trying to build a support level.

Liquidity Shortage Getting Worse: Fed's Repo Oversubcribed Even More As Funding Demand Jumps

I remain concerned about gap opens, increased volatility and low liquidity in other indices and individual stocks. However, the main technical factor to watch today is quad witching.

Thursday in the charts.

Stocks Pump-n-Dump As Quad-Witch Looms, Liquidity Crisis Continues

Traders confusion.

A "Hawkish Cut"? Traders' Sleepless Nights Dominated By Indecision & Confusion

Fundamental

Headlines

Yesterday’s data was mixed: weekly jobless claims, August existing home sales and the September Philly Fed manufacturing index were better than anticipated while the

August leading economic indicators and the Q2 trade deficit were below expectations

One estimate of the odds of recession before October 2020.

Political Calculations: 1 in 9 Chance of U.S. Recession Starting Before October 2020

Another recession forecast.

US Business Cycle Risk Report | 19 September 2019

Overseas, the July EU trade surplus was above estimates while the July Japanese all industry activity index and August UK retail sales were below. In addition, the OECD lowered its 2019 global growth estimate.

https://www.bloomberg.com/news/articles/2019-09-19/global-economy-seen-slipping-toward-weakest-growth-in-a-decade?srnd=premium

There was no big headline that drew my attention yesterday, but a number of the Market’s major concerns were in the news:

  1. the Fed:

Goldman thinks that the Fed will resume QE in November.

The Fed Will Restart QE In November: This Is How It Will Do It

The instability of Fed induced stability.

The Paradoxical Instability Of Fed-Induced 'Stability'

(2 ) theUS is building a coalition after Saudi oil attacks.

Saudi Arabia shows attack site damage as Iran pledges tough defense

  1. Trump advisor says China tariffs could go to 100%.

Stocks Slide After Trump's Top China Trade Advisor Says "Tariffs Could Go To 100%"

Bottom line: the economy is not that great but it is not awful. Meanwhile, the global economy continues to deteriorate which remains a burden to our own. Major unknowns include the US/China trade negotiations, the instability in the Middle East and the approach of Brexit.

On the other hand, central banks’ monetary policies remain accommodative and that has been the key to securities markets pin action. As long as investors believe that, it will remain so irrespective of valuations, fiscal and trade policies. As you know, I believe the Fed/Market codependency will ultimately end poorly. So, I would not be chasing stocks at these levels. Indeed, I think that the smart move is to take some profits in stocks that have moved into their Sell Half Ranges.

Rigged capitalism is damaging liberal democracy (must read):

Martin Wolf: why rigged capitalism is damaging liberal democracy

News on Stocks in Our Portfolios

McDonald's (NYSE:MCD) declares $1.25/share quarterly dividend, 7.8% increase from prior dividend of $1.16.

Economics

This Week’s Data

US

August existing home sales rose 1.3% versus forecasts of a decline of 0.4%.

Existing-Home Sales Up 1.3% in August

The August leading economic indicators were flat versus expectations of +0.1%.

Conference Board Leading Economic Index Unchanged in August

International

August Japanese CPI was flat versus forecasts of +0.2%.

August German PPI was -0.5% versus estimates of -0.2%.

Other

What I am reading today

The threat of health insurance costs to middle class life. I am not suggesting that the author has the right solution but he does make the problem clear.

Two Entrepreneurs Explain Why the Health Insurance Industry Is a Direct Threat to Middle-Class Life | naked capitalism

Your education tax dollars at work.

Grade-Rigging Scandal: Baltimore Students Missed 100+ Days Of School, Failed Classes, Still Graduated

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Disclosure: I am/we are long MCD.