Update #62: Knock Knock–Who’s There??–Q3 Earnings Next Month!

September 28 2019

THIS WEEK & NEXT WEEK…The week started OK then went into the tank a bit as worldwide PMI’s, disappointment in
the results of MU and talk of closing down access to Chinese firm due in part to accounting conformity was troubling.
Two indices that were starting to encourage me to alter my base case turned down substantially namely Transports & Russell.
Next week starting Sunday night; we get China’s PMI & Japan’s industrial production…followed on Tuesday with USA manufacturing & construction data plus PMI’s for India, Brazil, and Russia. Thursday; we’ll get USA factory orders and the big
kahuna is Friday with the USA Jobs report & Fed Chairman Powell speaking. Obviously increased volatility is a risk here.
With trade wars escalating before the Oct 10th meeting; would you do a ton of capital expenditures & manufacturing??

STOCK MARKET..My base case remains that the 2950 to 3100 is a sell zone and the rollover in the Transports (DJTA) & the
Russell (RUT) plus the VIX looking uncomfortable at any reading under 14 creates confidence in the base case. With Q3 earnings coming up; one might ask if it makes any sense to consider collars and married put to protect values on stocks that have run up like COST, HD,DG, C, WFC, TGT ect. as we approach these reports. I read that about 60-70% of all people in their 20’s still live at home for a variety of reasons…..maybe the home builders (DHI, PHM,LEN) with entry level prices and low interest rates have been telling us those numbers may be changing with 3 1/2% unemployment & the natural feeling of wanting your own place. AMZN has lost some altitude in the last couple of months and is testing the 1700 area which may be a change in valuation as we’ve seen P/E slip.
The markets want a trade deal and with the political events of the last week…Mr.Trump could soften his position by Oct 10th as
some analyst are revising growth targets for 2020 to between 1% and 1.8% continuing the year over year declines.

BOND MARKET…My base case has been that the 10 yr Treasury got overdone when the yield dropped to about 1.4% and a snap back toward 2% was possible to correct the imbalance which we almost got to in the last 2 weeks. Now; we are back to rates fading lower and with PMI’s fading & the jobs report this Friday, volatility may be back in fashion. I have told you about the debt explosion in negative & low yielding & junk bonds. We have more evidence of that this week as Italy issued 10 yr debt at the lowest yield ever, Junk bonds issue 29 billion which was the busiest month in 2019 and High Grade issues saw 150 billion last week from 124 issuers up about 60% from last September. In addition; Treasury offerings are increasing substantially to boot. While granting some is being used to refinance old debt; it is concerning that some say growth may slow substantially next year which puts earning forecasts in play as well as leverage and covenants. Any redemption run on sovereign or corporate debt is troubling.

US DOLLAR…same story different week..range bound 99-95 ball park on DXY….peeking out above 99 this week..let’s see next week

CRUDE OIL….big run above 60 after the attack on Saudi oil fields..then dump back to wipe out those speculators….now into support 54-56 where a number of moving averages converge and then the double low support at 50 area…my take is that when it maintains values above 60 or under 50….then you will have more evidence to make a definitive answer on the direction of c-oil.

GOLD SILVER COPPER…my base case on Gold remains that we broke out above 1350 and had a quick run into a 1520-1580 sell zone (former lows of 2012 & 2013) and well above the longer term moving averages (potentially overbought). We have seen dip under 1500 but not to the 1450-1400-1375 areas. Silver seems to following suit while Copper needs to overtake resistance of 2.80 & 3.00 to show legs. Will the September lows hold for the metals…we could get volatile this week…above 1600..adjust base case.
Longer term…if the administration want the dollar down (it’s rising)..Fed want inflation up….deficits soaring….positive for metals?

SOYBEANS…still keeping on eye out for China buying and other fundamentals but technical resistance between 9 -95- 10 remains

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