The Averages (DJIA 25064, S&P 2790) turned in a mixed performance yesterday (DJIA up, S&P down). Volume declined but breadth improved. The Dow continued to trade above its 100 day moving average (now support), above its 200 day moving average (now support) and within a short term trading range. The S&P ended above both moving averages, in uptrends across all timeframes and above the minor resistance from its June high for a third day. The assumption has to be that it will now challenge its all-time high (2874).
VIX rose 5 ½ %, but still finished below its 100 day moving average (now resistance), below its 200 day moving average (now resistance) and within a short term trading range. But for the second time in a week, it rallied before challenging the lower boundary of its short term trading range.
The long Treasury was down ½ %, ending well above its 100 and 200 day moving averages, in a long term uptrend but fell back below the upper boundary of its short term downtrend, negating Friday’s break.
The dollar was down fractionally, but stayed above both moving averages and in a short term uptrend.
Gold was down slightly, continuing to trade below both moving averages (its 100 DMA is near to crossing below its 200 DMA---an additional negative) and near the lower boundary of its short term downtrend. The only possible positive is that it is held above the minor support offered by its December 2017 low.
Bottom line: the technical position of the indices continues to improve---the only real negative being that both 100 day moving averages continue to fall toward their 200 day moving averages. The assumption remains that stock prices are going higher. TLT, UUP and GLD continue to perform like investors are betting on a relatively positive US economy versus the rest of the world’s economy. And that is being confirmed by the data flow (see below). The only problem, in my opinion, is that doing less poorly than the rest of the world is not a reason for stocks to advance when they are already near historic high valuations.
Yesterday in the charts (medium):
Yesterday’s economic data was mixed to somewhat positive: the July NY Fed manufacturing index was above forecasts; June retail sales were in line, though ex autos and gas, they were disappointing; May business inventories were in line, but sales were better than anticipated.
Overseas, Chinese stats were mixed to somewhat negative.
Trump held the headlines yesterday with his comments following his meeting with Putin; and they were not well received. Universal condemnation comes to mind. Lost in the shuffle was the imposition of retaliatory tariffs by five countries against US which then filed a complaint with World Trade Organization. Not to state the obvious; but so far, the Donald’s trade strategy is not having the hoped for results. (medium):
I normally avoid discussions of politics since this is an investment blog; but given yesterday’s (and who knows how long this will last) hue and cry, I thought this left/right debate interesting and helpful in putting the Putin meeting in perspective (medium):
Aside from trade, this week investors will also be dealing with Fed Chair Powell’s Humphrey-Hawkins testimony before congress (senate today, house tomorrow). Plus the meat of second quarter earnings season begins.
Bottom line: while the dataflow this week will low volume wise, but it will be heavy for the primary indicators. June retail sales (which wasn’t that impressive) started us off with industrial production, housing starts and leading economic indicators following up. That said, if investors continue to kid themselves about the underlying strength in the economy, anything short of a catastrophe will likely be greeted as good news.
Expectations for this earnings season are reasonably upbeat. As long as that scenario plays out, equities will likely maintain the upward momentum.
As I noted above, to date, the trade narrative has not been good. The longer it remains that way, the more likely it will return as a drag on stock prices.
With stock prices at historically high valuations and momentum remaining to the upside, investors are being provided with an excellent opportunity to build cash reserves. I am not suggesting that they run for the hills, just use price strength to provide a source of funds for purchasing bargains when the second half of this Market cycle inevitably occurs.
Are ‘bubbles’ the new norm (medium):
News on Stocks in Our Portfolios
Johnson & Johnson (NYSE:JNJ): Q2 EPS of $2.10 beats by $0.03.
Johnson & Johnson (NYSE:JNJ) declares $0.90/share quarterly dividend, in line with previous.
This Week’s Data
May business inventories rose 0.4%, in line; sales were up 1.4%.
A trade war and high global debt don’t mix (medium):
Update on big four economic indicators (medium):
What I am reading today
Mueller’s Russian indictments (medium):
Quote of the day (short):
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