Thursday, May 10, 2018

The Morning Call--Confirmation


The Morning Call

5/10/18

The Market
         
    Technical

The indices (DJIA 24542, S&P 2697) soared yesterday. Volume was up; breadth improved.   The most important thing was that the S&P made a clear break above the upper boundary of its very short term downtrend and with the kind of energy that I had anticipated.  If it remains there through the close today, the challenge will be confirmed.

Both of the Averages closed below their 100 day moving averages (now resistance); however, the S&P is just below this resistance level and appears ready to make a challenge.  They also ended above their 200 day moving averages (now support).  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. The clouds in the short term technical picture are clearly breaking and will dissipate completely if the S&P remains near current levels today.  Both still need to push through their 100 day moving average before we can focus on the former all-time highs as the next resistance level.   Longer term, the assumption is that equity prices will continue to rise.
                As you might expect, the VIX was hammered (down 9%), finishing below its 100 day moving average (now resistance) as well as its 200 day moving average (now support; but if it remains there through the close on Monday, it will revert to resistance).  In addition, it closed right on the lower boundary of its short term trading range.

The long Treasury sold off ½ %, leaving it right on the lower boundary to its long term uptrend and facing serious overhead resistance from its 100 and 200 day moving averages and the upper boundary of a short term downtrend.

The dollar was unchanged, keeping it within pennies of the upper boundary of its newly reset intermediate term trading range and holding above its 100 and 200 day moving averages (now support).
               
GLD ended lower, finishing above its 200 day moving average (now support) and in a newly reset short term trading range.  However, it remained below its 100 day moving average (now resistance).
               
Bottom line: the long awaited S&P break out of the four and a half month pennant formation has apparently occurred.  I still need for that challenge to be confirmed today before making a clear call.  Given the usual pin action following such a long developing formation, I would expect the confirmation and that the S&P soon reset its 100 day moving average from resistance to support. 
TLT continues to move nearer another challenge of the lower boundary of its long term uptrend.  A break would point to higher long term interest rates.  At the moment, the strong pin action in the dollar appears to be driving TLT down.  On the other hand, while gold has been trading near several key support levels, the strong dollar has not pushed it to any challenges.  That is not usual.

Taking all these indicators as a whole, it would appear that the Market is betting on an improving economy but with little inflationary pressure which would suggest higher stock prices accompanied by gradually higher interest rates, stronger dollar and lower gold prices.

    Fundamental

       Headlines

            Yesterday’s economic data releases were mixed: weekly mortgage and purchase applications declined; the April headline PPI number was lower than expected but ex food and energy, it was in line; and March wholesale inventories were below estimates, but were in line with sales.

            Overseas, April UK retail sales were disappointing.

            ***overnight, the Bank of England met, left rates and QE unchanged and lowered its economic growth forecast.

            Aside from investor focus on the chart of the S&P, the other news of the day centered on fall out from Trump’s Iran decision and the never ending Mueller/Trump/Cohen/Russia mess. 

            I have to add this reaction from Germany on the Iran deal---yeah, Angela and not a moment too soon. (medium):


            Bottom line: I hate even having to deal with our ruling class mud wrestling.  Normally, it is like swatting at a gnat.  So I do all I can to avoid it except to say, in this case, that I hope this is not foreplay in anticipation of impeachment.  I have lived through two impeachment processes and neither of those were Market friendly.  That said, investors either don’t care or don’t believe there is much chance of impeachment.

            What Markets seem to be doing is rebuilding enthusiasm for a goldilocks economy---decent growth, low inflation and a Market friendly Fed.  As you know, I take exception to that view.  I am not going to be repetitive but I leave with the thoughts from John Mauldin (medium and a must read):

    News on Stocks in Our Portfolios
 
Expeditors (NASDAQ:EXPD) declares $0.45/share semi-annual dividend, 7.1% increase from prior dividend of $0.42.         

Qualcomm’s (NASDAQ:QCOMboard approves a new $10B stock repurchase program, effective immediately.  The program replaces the $15B program announced in March 2015, which had $1.2B left. 
Economics

   This Week’s Data

      US

                March wholesale inventories were up 0.3% versus forecasts of up 0.5%; sales were also up 0.3%.
               
                Weekly jobless claims were flat versus expectations of a 9,000 claim increase.
               
                April CPI was up 0.2% versus estimates of up 0.3%; ex food and energy, it was up 0.1% versus consensus of up 0.2%.

     International

            April UK retail sales fell 3.1% year over year.

            April Chinese CPI was up 0.2% versus projections of up 0.3%; PPI was down 0.2%, in line.

    Other

            The unemployment rate and the stock market (medium):

            A recession soon? (medium):

            The state of consumer debt (medium):

            Another step away from the dollar’s reserve currency status (medium and a must read):

What I am reading today

            Rooftop solar energy is expensive and inefficient (short):


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