I update each Saturday with my view of the stock market for the next few weeks (if occupied with family or travel, rarely I am a day or two late, just check back). The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a primary bear market, and buy back in for most of the next bull market. You can always scroll down a few weeks and find the latest “Long Term” update.
If you lose your bookmark to the blog, google “Rich Investing” and it should show up on the first page or so. The more often you google it and hit the link, the higher it will show in your results.
New home sales in the U.S. increased 7.1% on a monthly basis in August to a seasonally-adjusted annual rate of 713,000, a powerful surge spurred by the recent drop in interest rates. The monthly average of new jobless claims slipped by 750 to 212,000 nationwide. The second estimate of Q2 GDP was unchanged at 2%, showing growth has slowed from 2018. Orders for durable goods increased 0.2% last month. The final consumer sentiment survey rose to 93.2 in September, the University of Michigan said Friday, a small bounce back from an 89.8 reading in August that was the lowest in three years.
Other than the jump on home sales which is spurred by the drop in interest rates, the rest of the economy has slipped back to the 2% growth economy that we saw in Obama’s second term. That is an OK place to be. It does cast doubt on the republican narrative that the 2018 tax cut would spur the economy to greater growth on a long term basis. I don’t believe that tax cuts are a long term stimulus, because I have not seen that work. Bush cut taxes in 2001 and 2003, and they did not transform the economy to a long term higher growth. Reagan was famous for his tax cuts spurring the economy in the 1980’s, but many other things were happening in the economy, like oil prices coming down from $35 a barrel to $10 by the end of the decade, and the introduction of personal computers to corporate America in 1981, which greatly boosted productivity.
The big event of the week was the revelation that President Trump asked Ukraine to investigate whether former vice president Biden and his son Hunter were involved in corruption in Ukraine. The House started a formal Impeachment Inquiry into Trump’s action and that will drag on for a few months. This weakens Trump, and in a news driven stock market, it will not help.
The Chinese see this and think Trump needs a win at something and a China trade deal would be a great win, if it is a strong deal for the US. China will not offer a good deal in October, simply because they know Trump needs a deal badly. Trump may not want a deal too quickly as voters could forget about it going into the 2020 election, so he may want the deal done in Jan. / Feb. so it will be fresh in voter’s minds going into the election. So, I don’t expect a deal to get done for a while, and I expect that Trump’s weakness at home will limit how good a deal the US can get from China. We’ll see.
The stock market lost 1% on the week.
Technically the chart is suspicious and mildly negative. After a nice four week rally from the August lows the market looks weak. RSI at the top of the chart is back to neutral at 50 and trending slightly down. Momentum shown by MACD at the bottom of the chart has rolled over and is heading down, a short term negative. Price action of the market is negative in the short term and heading down. I added two horizontal aqua lines at a potential double top level of 3020, but it remains to be seen if the market can rise above that top and go on and set a new record high. While the market does not break out over the potential double top, it remains vulnerable to more corrective action.
What am I doing? Not much, as my major move was done about 3 weeks ago as I sold into strength. I don’t expect the China trade talks in a few weeks to produce a good deal and that could bring market weakness. Factset is projecting Q3 earnings to be 3% below last year’s level and that is not good. Q3 earnings will start in earnest in two weeks. I’m waiting for a better entry point.
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You can use the hyperlink below the chart of the S&P that will open a larger picture of the chart in a separate window. The reader who suggested this wants to look at the chart side-by-side with the blog text so he can look at the chart while reading the text. To do this in Firefox you can open a “private window” from the browser menu and have two instances of Firefox up, then size each window to about half of your monitor size. If you bookmark the link to the chart you can look at it each day of the week to see how the market is progressing to certain milestones. The picture in this post is a static .jpg so it does not update, but if you bookmark the link to the live chart on stockcharts and look at that daily, it does update.
Rich Comeau, Rich Investing