Friday, May 18, 2018

The Morning Call---Act V, Scene ?


The Morning Call

5/18/18

The Market
         
    Technical

The Averages (DJIA 24713, S&P 2720) drifted lower yesterday on higher volume  and mixed breadth.   The S&P remained above its 100 day moving average (now support); but the Dow remained below its 100 day moving average (now resistance).   That challenge  has to be successfully made in order to give clear sailing to the former all-time highs.  But that still seems likely.

Both remained above their 200 day moving averages.  The DJIA closed in a short term trading range but in intermediate and long term uptrends.  The S&P is in uptrends across all timeframes.  Longer term, the assumption is that equity prices will continue to rise.
               
                The VIX inched higher, ending below its 100 and 200 day moving averages (now resistance).  It also finished in a short term downtrend.

The long Treasury was off ½ %, finishing below the lower boundary of its long term uptrend for the third day; if it remains there through the close next Monday, it will reset to a trading range.  It continues below its 100 and 200 day moving averages and within a short term downtrend.

The dollar was up again, closing above on the upper boundary of its newly reset intermediate term trading range (if it remains there through the close next Monday, it will reset to an uptrend).  It also finished above its 100 and 200 day moving averages (now support).
               
GLD was up fractionally, ending below its 100 day moving average (now resistance), below its 200 day moving average for a third day (now support; if it remains there through the close today, it will revert to resistance) and below the lower boundary a newly reset short term trading range for a third day, resetting to a downtrend.
               
Bottom line: there was more pin action around resistance/support levels yesterday. The long Treasury continues its challenge of its long term uptrend and the dollar is now challenging the upper boundary of its intermediate term trading range.  Meanwhile, GLD reset its short term trend from a trading range to a downtrend.  This is pointing to higher interest rates and a less accommodative Fed. 

Given my economic outlook, the assumption is that this would also have a negative effect on stocks.  Clearly that is not happening---which means to me that equity investors are still operating under a scenario of an improving but low inflationary growth economy and a generally accommodative Fed---which is not my narrative.  So the Markets appear to be closer to the point that I will proved right or wrong.  I don’t mean tomorrow or next week.  This process could take months. 

But the point is that bonds, the dollar and gold are all acting as they do late in an economic cycle.  The question is how long can that go on?  The optimists believe years.  I think otherwise.  Either way, the economy is in the Fifth Act; it just whether it is at the beginning or near the end.

Finally, not to argue against myself; one short term tell is the current pin action in small cap stocks which have been steadily rising.   In my opinion, the Market is not going to fall meaningfully as long as the small caps have momentum to the upside.
           
    Fundamental

       Headlines

            Yesterday’s economic data was mixed: weekly jobless claims rose more than expected, April leading economic indicators were in line and the Philly Fed manufacturing index was quite strong.  Nothing overseas.

            The debate about the longer term meaning for the economy of rising interest rates and the dollar continues to occupy center stage for investors.  Most of my posts this week has focused on these issues; so I won’t be repetitive except for my bottom line: the economy is slowing and the Fed will likely be forced to continue to unwind QE whatever the growth rate which will be a negative for the Markets.

            Bottom line: as you know, my views are not the consensus.  Stocks are saying that I am wrong; and I have to respect that.  And I am open to being wrong---it won’t be the first time.  But until the economy shows more signs of improvement and until it is clear that the push to higher rates and a rising dollar aren’t going to be a burden to the economy and the Market, I am sticking with my forecast.

            Trump ups the ante on trade with the EU (medium):
     
            ***overnight, China sounded tough on trade but dropped an anti-dumping probe on US sorghum (medium):

                ***overnight, US trade representative said that the US was nowhere near a deal on NAFTA.

            Liquidity is the problem (medium and today’s must read):

            The latest on stock buybacks (medium):

    News on Stocks in Our Portfolios
 
Emerson (NYSE:EMR) has agreed to acquire Aventics from Triton for a cash purchase price of €527M.
The company, which had sales of $425M in 2017, is among the global leaders in smart pneumatics technologies that power machine and factory automation applications.

Home Depot (NYSE:HD) declares $1.03/share quarterly dividend, in line with previous.  

Economics

   This Week’s Data

      US

            The April leading economic indicators were up 0.4%, in line.

     International

            April Japanese CPI rose 0.6% versus estimates of up 0.7%.

    Other

            ***overnight, North Korea suspended talks with the South.

            Are we starting to see ‘crowding out’? (short):

            Household credit reaches another peak (medium):
                       
How will sanctions against Iran impact oil prices (medium):

What I am reading today

            Five steps to ease money/health worried in retirement (medium):

            The worse advice I ever heard (medium):

            How to start having more sex (medium):

            How much do you need for retirement? (medium):

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