The yield on the 10-year U.S. note was down by 13 basis points at the lows of the day.

Currently, the yield is only down by two basis points. 

iShares 20+ Year Treasury Bond ETF (TLT) , which had risen by over +$3 in the morning is virtually flat on the day.

New averages in (SPY) and (QQQ) shorts are about $288 and $184.

I use a "funnel" approach on my scales -- shorting more shares at every level as the prices rise.

I have been averaging up on my (SPY) and (QQQ) shorts this afternoon.
My averages are $287.45 and $183.73, respectively.

You may continue to observe that I continue to be somewhat indifferent towards price momentum in favor of being focused on the reward vs. risk of the market. (I am typically not a day trader, though there are infrequent exceptions to that rule).

The fact that the S&P has rallied by nearly 60 handles from the day's lows does not move me.

What moves me (and forms my investment methodology) is the relationship of the S&P's current share price relative to my sense of its value.

My sense of value is derived by a multi variable approach which incorporates mostly a view of the fundamental backdrop sprinkled with a combination of an assessment of sentiment, valuations, domestic and global growth expectations, the outlook for corporate profits, inflation, interest rates and a number of other considerations.

When stock prices fall to a discount to "fair market value" I consider buying.

When stock prices rise to a premium to "fair market value" I consider selling/shorting.

These are my opportunity metrics - not a line on a page.

Moved back to a small net short.

"I like to write that I manage money with a calculator and a contrarian streak. So let's get down to specific expectations...

I made these moves in the belief that we might be entering a lower volume (end of summer) "two way" trading environment into the fall - a broad trading range (in Spy terms) of about $270-$295 (we closed at $283.82, right in the middle of the range) . So, the upside/downside is relatively even. (In S&P terms that is about 2700-2950).

Though the reasons for the recent interest rate drop can be considered a prospective economic negative (implying much slower growth), the downside of "only" 2700 (S&P) is higher than where I was previously - out of respect for a 1.75% 10 year US note (that provides a bit of a cushion - against my anticipated low of 2.25% as expressed in my 15 Surprises For 2019)."

- Kass Diary, "How Now Dow Jones?"

I have moved from small net long to neutral just now.

I have shorted indices - (SPY) at $287.08 and (QQQ) at $183.46 - to achieve this end.

On any further strength towards the upper end of my anticipated trading range parameters (SPY $270-$295) I raised in my opening missive "How Now Dow Jones" yesterday morning.

Nice rally off the lows.
I am looking to move back to neutral from my small net long exposure on this rally.

I have been buying (GLD) on weakness over the last 1-2 weeks - and the asset class is an obvious beneficiary of the race to the bottom in currencies and interest rates.
Perhaps gold is becoming TOO obvious!

I have a business lunch but I won't miss watching the tape!

No trades today.

The decline in interest rates is getting scary, according to Peter Boockvar:

After a 1.5% m/o/m decline in the June German industrial production figure vs the estimate of down .5% with declines widespread in manufacturing, mining, intermediate goods, capital goods, consumer goods and energy, German bund yields are sinking again and taking yields across the region with it. The y/o/y decline in IP of 5.2% is the 10th month in the past 11 and is the biggest since November 2009. The German Economy Ministry said manufacturing "remains mired in a downturn."

The German 10 yr bund yield is down 5.5 bps and lower for the 16th day in the past 18 to -.59%. The 2 yr is now at -.83%. Commerzbank reported earnings that missed estimates and its stock is falling to the lowest level since I have data going back to 1992. It's down 98% from its 2007 high. The Swiss 10 yr is dropping to -1.0%, the Spanish 10 yr is now just .15% and France is down to -.34%. US Treasury yields are getting dragged lower in sympathy. The already epic global bond bubble continues to inflate further and I think it's really scary to watch. Is it any mystery why gold is now above $1500?

GERMAN 10 yr BUND YIELD

Commerzbank stock

Gold in orange, the $ amount of negative yielding bonds

The Reserve Bank of New Zealand cut its benchmark rate by 50 bps surprisingly to 1% because the market was only expecting 25 bps. Will they stop here? Of course not as the New Zealand Governor said "It's easily within the realms of possibility that we might have to use negative interest rates." I guess because it's worked so well for Europe and Japan? The New Zealand dollar is falling to the lowest level since January 2016 vs the US dollar. Their 10 yr yield is plunging by 14 bps to 1.16%.

The Bank of Thailand and Reserve Bank of India also lowered interest rates as central banks are desperately trying to offset the weakness in global trade and manufacturing. Lever up they are saying, even more. It won't work unfortunately because we are already levered up.

Five days of selling last week in US stocks and not even capturing Monday's selloff sent the number of Bulls lower by a sharp 9.1 pts to 48.1 according to Investors Intelligence. Amazingly though people are still afraid to be bearish (the Fed has brainwashed everyone into not being one) as Bears rose just .8 pts to 17.9 and still less than 1 pt from the lowest level since March 2018. So the Correction side took most of the Bulls as they jumped to 34 from 25.7. I'd normally say the drop in Bulls is a good thing and a set up for a nice bounce in stocks but without a jump in Bears, I can't say that yet.

The lowest average 30 yr mortgage rate since November 2016 at 4.01% was not enough to help the purchase of a home as the MBA said applications fell 2% w/o/w, down for the 4th straight week and are now at the lowest level since March. While they are still up 6.5% y/o/y, I'd expect a much greater level of sales considering that mortgage rates are down 80 bps y/o/y. Refi's continue to be the only notable response to the drop in rates as they jumped 12% w/o/w and 116% y/o/y.

Lastly, China said its July FX reserves totaled $3.104 Trillion, slightly below the estimate of $3.105 Trillion but down from $3.119 Trillion in June. They continue to increase their pile of gold, buying about 10 tons in July after purchasing 84 tons in the prior 7 months. The fear in China with the new leg lower in the yuan is the possibility of greater capital flight but that would be in the August data if its started again in earnest. We'll also see if the PBOC is expending reserves to stem the pace of yuan decline. The yuan fix was a touch lower and the yuan is trading down, both onshore and offshore.

CHINESE FX Reserves in $s

From knowledge@wharton, Why the China-U.S. Trade Conflict Won't Become a Currency War.

After digesting Disney's (DIS) results I have concluded that I want to re-short the shares. (My short "level" is $140/share or above and my 12 month price target is $120/share).

There is no more universally loved company or stock than Disney - which has been the target of my negativity on and off over the last three years. (My investment thesis is here)

That analytical conclusion was profitable - and I made sizable profits in several short trades over time based on a lengthy short thesis. In fact, in a generally rising equity market Disney was a notable laggard in 2017-2018.

Not so much in 2019 when visions of sugarplums and streaming squeezed the shares higher and forced me to cover for a loss.

That "Group Stink" of optimism over Disney's streaming future (and launch of Disney+) has been conspicuous over the last few months. 

Last night the company's EPS missed by a full $0.27 to consensus expectations and came in at only $1.35/share. Almost all of the miss was from the acquired Fox biz which cost Disney of close to $0.60 compared to the guidance of $0.35 EPS dilution. The EBIT miss was a startling -$600 million relative to guide.
Excluding Fox, Disney reported +3 to +4% organic growth in EPS.
Looking to the next quarter the FOX EPS dilution will rise relative to expectations and cause a drain of about $0.45/share. Core Disney will be less than expected as well as Media Nets EBIT will be lower (ABC/ESPN is expected to be quite weak at almost -10% year over year, ACC launch costly and lower Netflix revenues). EBIT (ex-FOX) will be flat.
Street estimates will generally decline. Some will reduce the 2019 forecasts by as much as $1.00/share (to under $5.50) and for 2020 by $0.35-$0.40/share for next year (to $6.10-$6.15).
Fiscal 2020 could be even weaker - this will depend upon further shortfalls at Fox, the rising cost of content, expenses associate with the launch of Disney+ and whether the recent network weakness causes advertising revenues to draw down further. (Given the expected moderating trend of the U.S. economy I would expect more downside profit risks than upside potential).
Since FOX has been so dilutive out of the gate, one should apply a healthy skepticism towards Fiscal 2021 EPS projections by management and the analytical community (when FOX was expected to be accretive).
The prior strong execution of Disney's previous acquisitions resulted in investors and analysts giving Disney the benefit of the doubt going into the earnings report.
However the FOX execution out of the gate raises far bigger questions as to the company's likely limited profit progress over the next few years - that period of weak growth was one of the core reasons why I (prematurely) shorted DIS earlier this year.
At 23-4x next year's calendar EPS and at 16x EBITDA, I don't think investors will be as patient as they were leading up to the quarter.
To some, Disney is now a "show me" stock.

* A regime of volatility is growing more conspicuous (and likely) against an investment backdrop dominated by machines and algorithms
* More volatility is suggested by an increasingly ambiguous global economic picture and with the chances of policy mistakes rising (e.g., on the U.S./China trade front)
* Stagflation, anyone?
* An ideal trading market continues - good for the opportunists but not so good for the buy and hold crowd

"Workin' on our night moves
Trying to lose the awkward teenage blues
Workin' on out night moves
In the summertime
And oh the wonder
Felt the lightning
And we waited on the thunder
Waited on the thunder."
- Bob Seger, "Night Moves" 

On May 7th we began the day with a column, "Have We Reentered a Period Of Heightened Volatility?"
If the last six trading days did not provide an answer to that question, last night put another exclamation point on a likely period of more volatility.
S&P futures were over -20 lower in the evening, only to turn around to +11 handles at around 6 am.
The proximate cause was 3 more central bank rate cuts.
Stay tuned... for more night and day moves.

From Danielle DiMartino Booth: 

• July's job data is concerning as hours worked rolled over, a development that tends to precede headcount reductions; to create a more complete measure, QI added overtime to the factory workweek and found the combined metric fell to an eight-year low of 45.4 hours
• Uncertainty driven by the trade war has produced a persistent cutback in hours increasing the likelihood of reduced labor demand; the JOLTS' data suggest follow-on turns in both "more cyclical" and "less cyclical" job openings
• Weaker manufacturing hours invite downside risks to August factory hours and July and August job openings; nonfarm payrolls and the unemployment rate are the most lagged labor market statistics and will be the final data in which today's leading indicators manifest

Domino vs. snowball - the two are not one in the same. A domino effect is the cumulative outcome of one catalyst setting off a chain of similar events. It is typically envisioned as a mechanical sequence where the time between successive events is relatively short. A snowball effect is a process that starts from an initial state of insignificance and builds upon itself, becoming larger, graver and more serious morphing into a literal, vicious cycle. As the snowball careens down a snow-covered hillside, it gathers more snow, mass and surface area, picking up momentum at an increasing rate.

These two common effects can be helpful in describing end-of-cycle dynamics. If you think in linear terms, the domino effect applies. One domino falls, then another, and another, and so on. If, however, a dynamic presents itself in non-linear fashion, the snowball effect better suits. One factor influences another, then another, and yet another in an exponential build. We prefer the snowball to explain today's visual, which we'll come back to shortly.

First to a basic tenet of cycle chasing: hours lead bodies. It's much easier for firms to adjust working hours than headcount during periods of slower business activity or even outright contraction. Scaling back the number of hours, especially in cyclical industries, reduces labor costs to help offset unexpected hits to the top line. Should the revenue pressures abate, managers simply increase workers' hours accordingly.

The alternative? If these firms instead slashed jobs at the first sign of weakness, they'd run the risk of losing their employees. This is no "so what" matter. The cost of an employee lost is especially severe given the depth of skills atrophy in the current cycle among able-bodied workers. Skilled workers have been able to job-hop at a historic pace given they've been in such short supply in recent years.

As for what we're witnessing today, it's also historic. Last Friday's July jobs data showed a definitive rollover in the number of hours factory workers clocked: the manufacturing workweek plus overtime fell to an eight-year low of 45.5 hours combined.In the spirit of QI innovation, we improved upon the factory workweek - one of the ten components of the U.S. Leading Index -by adding overtime to create a more complete measure.

In fact, you have to rewind the clock by twelve months to find the last month-over-month increase in this broader measure of U.S. industrials timesheets. Conversely, July's 1.2-hour year-over-year decrease in the manufacturing workweek, including OT, is at the same level that's signaled eight of the past ten recessions since the late-1950s. Two false signals...not too shabby odds.

Trade war headwinds have brought on a persistent cutback in hours. This necessarily implies a persistent reduction in labor demand follows. It may sound like dominoes, but it's really a snowball. The blue and yellow lines above depict "more cyclical" and "less cyclical" job openings, respectively. These data were derived from yesterday's Job Openings and Labor Turnover Survey (JOLTS) for June. "More cyclical" industries include Construction, Manufacturing, Wholesale, Retail and Transportation while "less cyclical" industries consist of Information, Financial, Professional & Business Services, Leisure & Hospitality and "Other" Services.

For the purpose of analysis, JOLTS' limited history limits us to two cycles. We can glean that the downshift in factory worker hours leads.Hours peaked in July 2006 during the last cycle, prior to the turns in both job openings metrics. In the current expansion, hours peaked in April 2018, seven months before the top in more cyclical job openings and six months before the high point for less cyclical job openings.

To the industrials naysayers, this exercise illustrates the snowball effect of manufacturing's failing performance spreading like a contaminant across the private sector. The trade war escalation is likely to build on the current downtrends in manufacturing hours plus overtime and more cyclical and less cyclical job openings. Downside risks for August factory hours and July and August job openings are very much in play. Of course, harvesting that lagged data will take months.

In the meantime, we'd be remiss to not follow up on our theme of the past week. There is a forward-looking series in JOLTS, one Janet Yellen, a labor economist, in particular valued - the Quits data. Rising Quits denote higher worker confidence in quickly securing a new job and vice versa. To that end, we couldn't help but note that quits increased in construction by 34,000 but decreased by 35,000 in transportation, warehousing and utilities in June. Yes, a trend is emerging.

Until we can elaborate, commit to memory that job openings are a leading indicator of nonfarm payroll employment. Yes, weaker manufacturing hours have snow-balled into weaker job openings. But there are several more months of hillside below before nonfarm payrolls are rolled into the roar.

I don't want there to be any ambiguity about the size of my positions or about my buy and short levels as I strive for as much transparency as possible.

"When the time comes to buy, you won't want to."

--Walter Deemer

"When the time comes to sell, you won't want to."

--Walt Deemer

I promised to update my "Levels" at least once a month.

I am currently in a small net long position in terms of exposure.

Here are some of my new individual buy/short levels of stocks that I want to add to or reestablish on weakness and, in the case of shorts, to sell on strength:

BUYS

-- FB $182

-- (AMZN) $1825

-- (GOOGL) $1185

-- (PZZA) $40

-- (HIG) $53.50

-- (GS) $195

-- (TWTR) $41

-- (CGC) $33

-- (M) $21

-- (DDS) $70

-- (VNM) $16.50

-- (CMCSA) $39

-- (BAC) $28

-- (C) $67

-- (JPM) $106

-- (WFC) $47

-- (PG) $100

-- (GLD) $134

-- (KHC) $31

-- (VXX) $26

SHORTS

-- (AAPL) $200

-- (BEN) $33

-- (TROW) $106

-- (MU) $40

-- (TLT) $136

-- (SPY) $290

-- (QQQ) $185

-- (DIS) $140