The Morning Call
4/11/18
The
Market
Technical
The indices
(DJIA 24407, S&P 2656) spiked yesterday. Volume was down (continuing the
pattern of high volume on down days, lighter volume on up days); breadth was positive. However, both of the Averages still closed
within very short term downtrends and below their 100 day moving averages (now
resistance). They both remain above its
200 day moving average. The DJIA finished
in a short term trading range but in intermediate and long term uptrends. The S&P is in uptrends across all
timeframes. The short term technical picture remains cloudy; but longer term,
the assumption is that equity prices will continue to rise.
The VIX was down 6 ¼ % (unusually tame on a 400+ point Dow up day), but still ended in a very short term
uptrend, above its 100 and 200 day moving averages and the lower boundary of
its short term trading range---reflecting the obvious fact that volatility hasn’t
gone away.
The long
Treasury declined, but remained within its strong month long bounce (very short
term uptrend) off the lower boundary of its long term uptrend. On the
other hand, it continues to trade below its 100 and 200 day moving averages and
in a short term downtrend. So its pin
action is roughly the reverse of stocks---it is in a short term uptrend but
longer term it is in a downtrend.
The dollar was also
down, finishing below its 100 and 200 day moving averages and in an
intermediate term downtrend. UUP continues
to trade in a very tight range, which is not usual when bonds are moving big
directionally.
GLD was up again,
closing above the lower boundary of its short term uptrend and its 100 and 200
day moving averages.
Bottom line: the
technicals of the equity market point higher for the long term. Near term direction is in question; and
yesterday’s pin action did little alter that assessment. That said, the Averages have plenty of
support at lower levels. It will take a lot more technical damage
before I question whether or not this bull market is over.
The price
movements in TLT, UUP and GLD continue to the trade in their normal correlation
but did little to reflect yesterday’s equity euphoria.
Fundamental
Headlines
Yesterday’s
economic data was negative: the March small business optimism index and month
to date retail sales were disappointing; March PPI was hotter than anticipated;
and February wholesale inventories/sales were slightly less than expected.
The important
stat is the PPI, in that the nightmare economic scenario is the economy slowing
and inflation rising---forcing a tightening by the Fed. To be clear, that is not a prediction; at the
moment, it is an observation. But the
first half of the above equation (slowing economy) appears to be
occurring. It will take more evidence of
increasing inflationary pressures to generate a real threat.
The primary
headline was the overnight speech by Chinese premier Xi which indicated that
the Chinese were willing to make substantial concessions to avoid a trade
war. He didn’t address the pirating of
US intellectual property which is the most egregious of the many Chinese
violations of free trade. As a result,
the trade talks occurring between the US and China broke off on that very
point. I covered all of this yesterday
to links detailing Xi’s speech and the suspension of trade talks. So no need to be repetitious.
The point of
reiterating the sequence of events is that the Market went nuts over Xi’s
speech (words) and ignored the trade talks (actions). That makes no sense to me unless there were
other reasons for investor euphoria; and I didn’t see any of that.
Was
there any substance in Xi’s speech? (short):
Bottom
line: the economic numbers continue to disappoint; inflation may be moving higher;
while Xi’s speech sounded conciliatory, remember these guys lie---consistently. Even if a trade deal were to be struck with
China (which, to be sure, would be a big plus), the economic impact is not
enough to alter the gross mispricing of assets.
***overnight,
US/Russia confrontation in Syria is on the front burner (short):
https://www.zerohedge.com/news/2018-04-11/futures-rebound-after-trump-reverses-tweets-russia-needs-us-help-their-economy
https://www.zerohedge.com/news/2018-04-11/futures-rebound-after-trump-reverses-tweets-russia-needs-us-help-their-economy
Speaking
of valuations, I haven’t linked to any of John Hussman’s work lately because
his theme is unchanging. But as a
reminder, here is his latest. As usual
it is a bit long.
https://www.advisorperspectives.com/commentaries/2018/04/09/risk-aversion-meets-a-hypervalued-market
I
continue to like how my portfolios are structured---half equities, half cash.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month
to date retail chain store sales grow dropped dramatically from the prior week.
February
wholesale inventories advanced 1.0% versus expectations of up 1.1%; wholesale
sales were also up 1.0%.
Weekly
mortgage applications fell 1.9% while purchase applications were down 2.0%.
March
CPI was down 0.1% versus estimates of being unchanged; ex food and energy, it
was up 0.2%, in line
International
March
Chinese PPI and CPI were below estimates.
Global
PMI plunges to a sixteen month low.
Other
Why
trillion dollar deficits are a problem (medium):
And
why entitlements are only part of the problem (medium):
New
Fed head on the economy and monetary policy (medium):
Fed
vice-chairman on the slowing of long term economic growth (short):
Soybeans
and Chinese tariffs (short):
https://politicalcalculations.blogspot.com/2018/04/us-soybean-exports-are-fungible.html#.Wszz7YjwY2w
A
dive into post office economics and how they relate to Amazon (medium):
What
I am reading today
New
discovery regarding global warming (medium):
Imagination
is more important than science (medium):
Managing risk is not the same as
taking less risk (short):
Why bitcoin will never be a dominant
form of money (medium):
Reasons behind FBI raid on Trump’s
lawyer’s office (medium):
Iran threatens to restart nuclear
enrichment efforts (medium):
Massive
geomagnetic storm to hit the earth this week (medium):
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