The Morning Call
The Averages (26807, 2966) fell yesterday on significantly higher volume (not a positive sign) and deteriorating breadth. The S&P ended just above the upper boundary of the September 4th gap up open. Though the Dow is still a distance away.
The VIX soared 14 3/8%, closing above both MA’s (now resistance); if it remains above its 100 DMA through the close on Thursday, it will revert to support; if it remains above its 200 DMA through the close of Friday, it will revert to support. This is not a plus for equities.
The indices remain above both MA’s and in uptrends across all time-frames. So, my assumption is that the momentum remains to the upside. However, the odds of them closing those 9/4 gap up opens is high and rising. That said, as I noted previously, those gap up opens needed to close to eliminate them as a technical negative to a further advance in stock prices---in other words, closing them would be a potential positive.
Gold was up ½% and the long bond 1 ¼% so the need for safety appears to be growing. On the other hand, the dollar is backing and filling which is not really reinforcing the pin action in GLD and TLT.
Tuesday in the charts.
Yesterday’s stats were mixed: the September manufacturing and composite PMI’s and the September Richmond Fed manufacturing index were better than anticipated while month to date retail chain store sales, the July Case Shiller home price index , the September services PMI and the September consumer confidence index were below expectations.
Overseas, the July Japanese leading economic indicators, the September services and composite PMI’s were above estimates while the manufacturing PMI was below.
Other headlines impacting the Market:
- Middle East. This situation is not cooling off.
US accuses Iran proxies of attack on US Baghdad compound.
UK, Germany and France agree Iran responsible for Saudi attack.
- trade. In UN speech, Trumps hammers China’s trade practices.
But China makes another ‘goodwill’ gesture, preparing to increase US pork imports [it forgot to mention that the swine flu has devastated its pork producers and it needs to keep its population fed].
- impeachment. Pelosi announced an impeachment inquiry. I try to avoid politics; but this could have an impact on the Market. Two observations: [a] an inquiry is not an impeachment proceeding and [b] it is the Senate that votes on impeachment. The dems would need approximately 20 GOP senators to impeach Trump. Unless Trump was demanding the Ukrainian president to send over his favorite goat in order to get US aid, my guess is that the odds of impeachment are slim to none. Indeed, if this whistleblower affair turns out like every other dem attempt to discredit and impeach Trump, it could prove a plus for him and his re-election prospects
Bottom line: as volatile as yesterday’s headlines appear, I don’t see anything that would permanently damage investor psychology. Ultimately, any mean reversion in equity valuation will be, in my opinion, a function of investor recognition of the disaster that is Fed money policy.
Insider selling hits 20 year high.
Blackstone CEO warns of asset bubble.
News on Stocks in Our Portfolios
General Mills (NYSE:GIS) declares $0.49/share quarterly dividend, in line with previous.
Nike (NYSE:NKE): Q1 GAAP EPS of $0.86 beats by $0.15.
Revenue of $10.66B (+7.1% Y/Y) beats by $230M.
This Week’s Data
Month to date retail chain store sales grew slower than in the prior week.
The July Case Shiller home price index was up 0.1% versus estimates of up 0.3%.
The September Richmond Fed manufacturing index came in at -9 versus consensus of -11.
The September consumer confidence index was reported at 125.1 versus forecasts of 133.5.
What I am reading today
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Analyst's Disclosure: I am/we are long gis, nke.
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