Friday, June 22, 2018

The Morning Call--The numbers aren't getting that much better


The Morning Call

6/22/18

The Market
         
    Technical

The Averages (DJIA 24461, S&P 2749) reversed its daily pattern---trading down early on then sinking further through the day.  Volume declined; breadth continued weak---but is getting oversold.  The Dow finished below its 100 day moving average for a second day (now support; if it remains there through the close today, it will revert to resistance) while the S&P remained above (now support).  Both ended above their 200 day moving averages (now support).  The Dow is in a short term trading range, the S&P in a short term uptrend. 
               
                The VIX jumped 14 ½ %, closing below its 100 day moving average (now resistance) but above its 200 day moving average (now resistance; if it remains there through the close next Tuesday, it will revert to support).  It also finished above the upper in a short term trading range (which is the second time in June).  It looks like it bottomed in early June. 

The long Treasury was up ½ %, closing above its 100 day moving average and the lower boundary of its long term uptrend but below its 200 day moving average and remained in a short term downtrend.

The dollar was down ¼ % on huge volume, but still ended well above both moving averages and in a short term and very short term uptrends.

GLD was down again, finishing below its 100 and 200 day moving averages and in a short term downtrend.
               
Bottom line: the Dow continued its[S1]  challenge of its 100 day moving average which, itself is rolling over.  If successful, it would be the first technical damage done since trade worries became a primary concern.  But it is way too soon to become negative much less alter my assumption that long term stocks are going up.

On the other hand, bonds and the dollar again traded at odds with other; and gold declines no matter what the news or the pin action in other indicators. In short, we are getting no directional information from these indices.

    Fundamental

       Headlines

            Yesterday’s economic data did not make good reading: the May leading economic indicators were less than expected and the June Philly Fed manufacturing index was dramatically short of estimates; the good news was that weekly jobless claims were less than forecast.

            The other economic news was the release of the latest Fed stress test which pronounced the major banks’ capitalizations strong and could withstand a severe economic shock it assumed would be even worse than in the prior test.
               
Bottom line: I was a bit surprised that investors ignored overtures on trade from China and the EU.  Granted they were very not well publicized and very low key.  But they were still better than a sharp stick in the eye. 

***overnight, the EU imposed tariffs on $3.2 billion US goods.  But some in the administration are urging a reasoned response to the Chinese offer to negotiate.

Just as important in terms of the economic implications is the continuing irregular dataflow.  This week’s stats illustrate just how uneven it is.  True, I acknowledge that second quarter numbers are improvement over those of Q1.  But I still think that they portray an economy not nearly as strong as consensus and more importantly point to continued sluggish growth which will not be aided by the growing debt in all sectors of the economy.  If I am correct, equity valuations are too high and investors need to have cash in their portfolios.
           
            The performance of stocks versus bonds (medium):

            The latest from David Rosenberg (medium):

            Trade war versus earnings (short):

            OPEC’s meeting ends today which will include the announcement of any policy changes.


    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

            May leading economic indicators rose 0.2% versus forecasts of up 0.3%.

     International

            The June flash EU composite PMI was 54.8 versus estimates of 53.9; manufacturing was 55.0, in line; and services was 55.0 versus 53.7.

    Other

            An interesting study of the prices of soup and oil (short):    

            Hotel occupancy rates declined year over year (short):

What I am reading today

            Investment thoughts on size and time horizon (medium):

            Why diversification is so important (medium):

            Cryptocurrencies take another hit (medium):

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.




 [S1]

Thursday, June 21, 2018

The Morning Call--Good news from overseas


The Morning Call

6/21/18

The Market
         
    Technical

The Averages (DJIA 24657, S&P 2767) took a bit of a rest yesterday, closing mixed on the day (Dow down, S&P up).  Volume declined; breadth continued weak.  The Dow finished slightly below its 100 day moving average (now support; if it remains there through the close on Friday, it will revert to resistance) while the S&P remained above (now support).  Both ended above their 200 day moving averages (now support).  The Dow is in a short term trading range, the S&P in a short term uptrend. 

                The VIX was down 4 %, closing below its 100 and 200 day moving averages (now resistance).  However, it finished above the upper boundary of its short term downtrend for a third day, resetting to a trading range (which is the second time in June)---suggesting that it is trying to find a bottom. 

The long Treasury was down 7/8 %, closing above its 100 day moving average and the lower boundary of its long term uptrend but continued its retreat below its 200 day moving average and remained in a short term downtrend. Clearly not in line with its recent refuge as a safety trade.

The dollar was up fractionally, ending well above both moving averages and in a short term and very short term uptrends.

GLD was pounded again, finishing below its 100 and 200 day moving averages and in a short term downtrend.
               
Bottom line: trade went from a four inch to a one inch headline yesterday; and stocks took something of a break.  However, the Dow began a[S1]  challenge of its 100 day moving average which, if successful, would be the first technical damage done since trade worries became a primary concern.  But it is way too soon to become negative much less alter my assumption that long term stocks are going up.

On the other hand, bonds and the dollar again traded at odds with other; and gold declines not matter what the news or the pin action in other indicators.

            Yesterday in charts (short):

    Fundamental

       Headlines

            Yesterday’s economic data were slightly positive: weekly mortgage and purchase applications and the first quarter trade deficit were upbeat but May existing home sales (primary indicator) were abysmal.

            Finally, a day without a tariff threat.  Indeed, there was a bit of good news from German auto makers who told a US trade representative that they would be fine with a reduction in EU tariffs on the US cars as long as the US didn’t hit them with increased tariffs.  Of course, it is not within their power to control EU tariffs but it is certainly a hopeful sign that EU companies are recognizing the validity of Trump’s position.  I think that is the whole purpose of his strategy, isn’t it?  Now what will the EU politicians do?
      
            ***lots of news overnight:

Chinese officials approach US on trade issues (medium):

                The Bank of England met and left rates unchanged, though the accompanying narrative was more hawkish than anticipated, raising the odds an August hike.  It will maintain its bond buying program.

The EU Trade Commissioner said that the EU is ready to engage with the US to solve the trade problem.

Bottom line: just because it was a slow day for trade news doesn’t mean the battle is over---though clearly the overnight news was a big plus.  More likely, it is a between rounds respite in a prize fight.  That doesn’t necessarily mean that stocks will tank but it almost surely means continued volatility. 

I continue to think that the major unknowns are (1) whether or not our trading partners realize that the world is changing and either accept it or get dragged into it and (2) how much more difficult Trump will make the process by unnecessary bluster. 

So far, at least, equity investors have remained reasonably sanguine about the outcome.  But if the process gets prolonged, then earnings estimates are going to start coming down and that usually is not a plus for stock prices.  It sure makes sense to me to have cash in one’s portfolio; and this is an excellent time to be raising it while prices are still in an uptrend.

            The latest from Doug Kass (medium):

    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

            May existing home sales fell 0.4% versus expectations of a rise of 0.7%.

                Weekly jobless claims fell 3,000 versus estimates of a 2,000 increase.

            The June Philadelphia Fed manufacturing index came in at 19.9 versus forecasts of 28.0.

     International

    Other

            Will a trade war derail the economic rebound? (medium):

            How late in the economic cycle are we? (short):

            In praise of neo-liberalism (medium):

            Deutschebank discloses spectacular loss (medium and if you are worried about bank fragility, a must read):

            Merkel and Macron’s ‘plan’ (medium):

            Gresham’s Law and Bitcoin (medium):

            Chinese investments in US plunge (medium):

What I am reading today

            The most popular age to take social security (short):
                       
            Too big to be simple) (medium):

            On financial post traumatic stress disorder (medium):

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.




 [S1]

Wednesday, June 20, 2018

The Morning Call---Global chess match or Minnie Mouse Candy Land?


The Morning Call

6/20/18

The Market
         
    Technical

The Averages (DJIA 24700, S&P 2762) did a repeat of Monday, trading down big early, then spending the rest of the day trying to recover---which they did partially.  Volume was up; breadth improved.  The Dow finished right on its 100 day moving average while the S&P remained above (now support).  Both ended above their 200 day moving averages (now support).  The Dow is in a short term trading range, the S&P in a short term uptrend.  Longer term, the assumption is that stocks are moving higher.
               
                The VIX was up 8 ½ %, but still closed below its 100 and 200 day moving averages (now resistance).  However, it finished above the upper boundary of its short term downtrend for a second day; if it remains there through the close today, it will reset to a trading range (which would the second time in June)---suggesting that it is trying to find a bottom. 

The long Treasury was up ½ %, closing above its 100 day moving average and the lower boundary of its long term uptrend but below its 200 day moving average (though it is close to challenging it) and in a short term downtrend.  The turmoil in trade continues to drive investors to it as a safety trade.  

            Counterpoint:

The dollar was up ¼%, ending well above both moving averages and in a short term uptrend.  It has also reestablished a very short term uptrend.  Like TLT, it seems to be currently acting as a safety trade.

On the other hand, GLD, which has long been a safety trade, can’t get out of its own way.  Traditionally, it rises when interest rates decline (it hasn’t) but does fall when the dollar is strong.  So my confusion. Yesterday it was down (again) ending below its 100 and 200 day moving averages and has reset its short term trend to down.
               
Bottom line: trade worries continue to plague the Markets.  However, to date no major technical damage has been done to stocks.  Indeed, both indices remain in very short term uptrends.  So at this point, there is no reason to be concerned about the Market direction.  Of course, the tariff back and forth’s with China don’t seem like they are going to end any time soon; so the pin action could worsen.  On the other hand, a couple of conciliatory comments from either side could trigger a moonshot. 

To the contrary, bonds, the dollar and gold are being much more impacted.  I am not sure why the difference; though the temptation is to postulate that equity investors are tip toeing through the tulips.  But until they stop doing so, the assumption remains that stock prices are going higher.

            Emerging market contagion goes global (medium):

    Fundamental

       Headlines

            Yesterday’s economic data was somewhat negative: month to date retail chain store sales improved, May housing starts very much better than anticipated however, building permits were much worse.

            Trade remains the foremost factor in virtually every global market. The prime determining factor is Trump. I have made clear that I like what he is trying to accomplish; and if he is successful, it will improve the long term secular growth rate of the US economy.  The unknowns are (1) how long will it take our trading partners to recognize and accept [if at all] that a new political/trade paradigm is being formed and (2) the ultimate impact of Trump’s unpredictability and his inclination to exacerbate a disagreement by his cheap sh*t comments. 

I can’t believe that I am actually linking to a NY Times article; but here is an op ed on Trump trade policies (medium):

There are two alternative scenarios (1) I am wrong, that what is occurring is not a giant global chess game but the equivalent of my granddaughter’s Minnie Mouse Candy Land; and that after a brief period of bluster, Trump will eke out a couple of concessions from China (EU, NAFTA), declare victory and go on to find another cause for which he can make dramatic tweets and insult the opponents. (2) I am right, the Market agrees with me and is willing to look through the uncertainty.
           
Bottom line: I have no idea how long this prize fight can go on.  The good news is that all tariff action already taken will take some time to go into effect; so there is time to reach some an accommodative solution.  The bad news is that we are in chartered territory and we have no real idea how serious Trump is or how painful the renegotiation process can become. 

So far, at least, equity investors have remained reasonably sanguine about the outcome.  But if the process gets prolonged, then earnings estimates are going to start coming down and that usually is not a plus for stock prices.  It sure makes sense to me to have cash in one’s portfolio; and this is an excellent time to be raising it while prices are still in an uptrend.


           

           
           

    News on Stocks in Our Portfolios
 
Oracle (NYSE:ORCL): Q4 EPS of $0.99 beats by $0.05.
Revenue of $11.25B (+2.8% Y/Y) beats by $60M.

Oracle (NYSE:ORCL) declares $0.19/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

            Month to date retail chain store sales grew faster than in the prior week.

            Weekly mortgage applications rose 5.1% while purchase applications were up 4.0%.

            The first quarter trade deficit was $124.1 billion versus estimates of $129.3 billion.

     International

    Other

            Banking troubles in the eurozone (medium):

What I am reading today

            Why boring municipal bonds are exciting investors (medium):
            
            Social security myths (medium):

            More on unfunded pension liabilities (medium):


Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.




Tuesday, June 19, 2018

The Morning Call---I'll raise you $200 million


The Morning Call

6/19/18

The Market
         
    Technical

The Averages (DJIA 24987, S&P 2773) were down big in early trading, then spent the rest of the day trying to recover---which they did partially.  Volume was about the level of last Thursday (I am ignoring Friday’ quad witching); breadth was negative.  Both finished above their 100 (though the Dow is nearing its MA) and 200 day moving averages (now support).  The Dow is in a short term trading range, the S&P in a short term uptrend.  Longer term, the assumption is that stocks are moving higher.
               
                The VIX was up 3 %, but still ended below its 100 and 200 day moving averages (now resistance).  However, it is back above the upper boundary of its short term downtrend (for the second time in the last five trading days).  If it remains there through the close on Wednesday, it will reset to a trading range (which would the second time in June)---suggesting that it is trying to find a bottom.  Remember that at current price levels, institutional investors are buying it for portfolio insurance. 

The long Treasury was down slightly, finishing above its 100 day moving average and the lower boundary of its long term uptrend but below its 200 day moving average and in a short term downtrend.  While the pin action last week indicated that the turmoil in trade is driving investors to it as a safety trade, it is still facing the aforementioned resistance levels.  

The dollar was flat, closing well above both moving averages and in a short term uptrend.  Like TLT, it seems to be currently acting as a safety trade.

On the other hand, GLD, which has long been a safety trade, was down ¼ % after being hammered on Friday, ending below its 100 and 200 day moving averages and below the lower boundary of its newly reset short term trading range.  I have no explanation for this performance.
               
Bottom line: trade worries appeared to be hanging around as the tit for tat tariff threat exchanges between the US and China escalate.  However, they seemed contained yesterday in stocks, the long bond and the dollar. GLD’s action continues to confuse me.  I repeat my conclusion from last week:  After a week heavily ladened with important economic developments, much of them negative, the price action in stocks suggest more upside.

    Fundamental

       Headlines

            Only one minor datapoint was released yesterday: the June housing index was pretty bad.
           
            Trade/tariffs remain center stage in investor concerns, though there were no headlines yesterday.

            Just the fear of a trade war is impacting trade (medium):

            ***overnight, Trump is threatening tariffs on an additional $200 million of Chinese products.

Bottom line: the outcome of the barrage of tariff threats will have a major impact on secular economic growth or the lack thereof.  Given the current aggressive tariff rhetoric, prospects for higher growth do not look all that great.  And if I am correct about Trump’s intent (dismantling the post WWII political/trade paradigm.  See Saturday’s Closing Bell for more info), this is likely to be a more complicated and painful process that just arguing over relative tariff levels.   We are not there yet; but this is, in my opinion, a growing risk to global economic growth.

    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

            The June housing market index was reported at 68 versus forecasts of 78.


                        May housing starts rose 4.9% versus expectations of up 2.5%; building permits fell 4.6% versus estimates of being flat.      

     International

    Other

            Update on the consumer credit cycle (medium):

            We won’t know the final lessons of QE until it’s over (medium):

            China curbs credit, economic growth slows (medium):

            Hotel occupancy rates down slightly (medium):

What I am reading today

            The 5% rule (short):

            Spousal benefits of social security (medium):

            The number one rule in investing (medium):

            Commissions matter (medium):

            Myths of stocks in the long run (medium):

            The latest on bitcoin (short):

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.