The indices (DJIA 24873, S&P 2747) turn in a mixed performance yesterday (Dow up, S&P down). Both have made a second lower high; that keeps the very short term momentum to the downside. It also adds to a developing pattern in which stocks open up strong, then sell off the remainder of the day. It is too soon to know if investor psychology has switched from ‘buy the dip’ to ‘sell the rip’; but it seems to be occurring.
Volume was down and remained at a low level. Breadth was mixed. Today is a quad witching; and historically, the March version has been positive. That may, at least, partially account for yesterday’s pin action and may indicate what today will look like.
The indices are above both moving averages and within uptrends across all major timeframes. The technical assumption is that long term stocks are going higher. However, the indices are now stuck in a narrowing range defined by lower highs and higher lows. In addition, they need to overcome their former all-time highs before we have an all clear signal.
The VIX was down 3 ¾ %. While the intraday stock price volatility continues to be high, the VIX’s price action has been relatively subdued---a plus for stocks, which is a counter argument to the ‘sell the rips’ scenario.
The long Treasury was unchanged, but negated its very short term downtrend. That is something of a plus though longer term the momentum remains to the downside. I suggested yesterday that the recent strength in bond prices may be indicating a shift in investors’ sentiment from stronger to weaker economic growth. A lot more upside is needed to confirm such a change in attitude.
The yield curve continues to flatten (medium):
The dollar was up slightly, apparently helped by the new NEC chief Larry Kudlow in which he extolled the virtues of ‘king dollar’ and urged investors to sell gold. However, it didn’t do much to improve an ugly chart.
GLD was down fractionally (see above). It is nearing the lower boundary of its short term uptrend, which if breached would definitely slow the current upward momentum.
Bottom line: the technicals of the equity market point higher for the long term; though very short term the pin action suggests some more downside. Bond investors took a rest while Kudlow seems to have worked a little magic on UUP and GLD.
Yesterday’s economic data was slightly to the negative side: weekly jobless claims and the NY Fed manufacturing index were better than expected while the March housing market index, the March Philly Fed index and February import/export prices were worse. So again, it looks like we are headed for a negative week. However, today will also be busy and will include two primary indicators.
Yesterday was not much of a news day. Although Peter Navarro, Trump’s chief trade advisor and sponsor of the new ‘tariff’ strategy, kicked off the day with an interview in which he made the ‘our trading partners know they are screwing us, so they will fold on the trade issue’ argument. That is certainly a possibility. But as I have noted, that strategy, even if correct, will likely involve a very rough ride especially with regards to China and IT theft; plus it carries a reasonably high risk of unintended consequences.
Bottom line: I continue to believe that the economy is not as strong as the consensus thinks. I also believe that a second tax cut will not be pro-growth. And finally, while I support Trump going after China for its theft of US intellectual property, the resolution of this problem could prove thorny.
Cash is good.
News on Stocks in Our Portfolios
Tiffany (NYSE:TIF): Q4 EPS of $1.67 beats by $0.03.
This Week’s Data
The March housing market index was reported at 70 versus expectations of 72.
February housing starts declined 6.9% versus estimates of -3.0%.
The latest from Lacy Hunt (medium and a must read):
Moody’s warns of increasing bankruptcies in retail (medium):
What I am reading today
Understanding a messy world (medium):
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