The Morning Call
5/2/18
The
Market
Technical
Yet another
roller coaster day; the indices (DJIA 24099, S&P 2654) started the day with
a big selloff, then rallied in the afternoon to close mixed on the day (Dow
down, S&P up). Volume was down; breadth poor. Intraday,
the S&P traded near its 200 day moving average, then bounced. It ended below the upper boundary of its very
short term downtrend (the Dow ended below the upper boundary of its former very
short term downtrend). That leaves the
Averages out of sync with respect to this one indicator, meaning that there is
little informational value on direction/momentum. Both finished below their 100 day moving
averages (now resistance) but 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 short term technical picture remains cloudy. Longer term, the assumption is that equity
prices will continue to rise.
The VIX fell 2 ¾ %, ending
below its 100 day moving average for a third day, reverting to resistance. It
finished above its 200 day moving average and the lower boundary of its short
term trading range. This action is pointing to higher stock
prices.
The long
Treasury sold off ½%. It remained below
its 100 and 200 day moving averages and in a short term downtrend and back near
a challenge of the lower boundary of its long term uptrend.
A
flatter yield curve is no reason for concern (medium):
Is corporate
debt the next ‘big short’ (medium):
The corporate
yield curve is now flat (medium and a must read):
The dollar was
up another ½ % on huge volume, remaining above the lower boundary of its newly
reset intermediate term trading range, above its 100 day moving average (now support)
and above its 200 day moving average for the fourth day, reverting to support.
GLD was pounded
another ¾ %, falling 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), right
on its 200 day moving average (now support) and in a newly reset short term
trading range.
Bottom line: my focus
remains on the Averages’ pin action as they continue to bounce between the
upper and lower boundaries of an ever shrinking range. Yesterday witnessed yet another move toward
the lower boundary, then a bounce. Sooner or later (and given the narrowness of the
range, sooner is the more likely alternative) that range will be broken;
history suggests a strong follow up move in the direction of the break.
TLT investors
appear to have backed off the thought of rising interest rates; although short
rates continue to have an upward bias. That
explains the pin action in both the dollar (which is soaring) and gold (which
is getting hammered). However, as I noted
Saturday, the recent price action in all the indicators suggests a good deal of
investor turmoil/confusion as multiple support/resistance levels are being
challenged.
Price
instability/uncertainty remains for the moment.
The question is duration. Patience.
I love my cash.
Fundamental
Headlines
Yesterday’s
economic data was a bit disappointing: month to date retail chain store sales growth
improved, while the April manufacturing PMI was in line; but the April ISM
manufacturing index was below expectations and March construction spending was
awful.
There
was very little else by way of new news; though investor narrative through the
day focused on not just the schizophrenic pin action in the equity markets but
also in the bond, dollar, gold and oil markets.
Of course, all of this may be nothing but random price moves accentuated
by higher volatility. On the other hand,
it could be that the times, they are a’ changin’. Whether they are or not, I have no clue. And I won’t know until, as and if the Markets
clearly tell me so.
Bottom
line: I believe that sooner or later the gross mispricing and misallocation of
assets will be corrected. It seems
logical to me that at some point rising short term interest rates and the
unwinding of the Fed’s balance sheet will induce sufficient price pain to alter
investors’ optimism. But generally, the
catalytic event is never what seems logical.
If
I was fully invested, I would definitely lighten my equity exposure. I continue to appreciate my Price Discipline
which forces me to Sell Half when a stock meets its price objective.
News on Stocks in Our Portfolios
Revenue of $3.47B (+9.8% Y/Y) beats by $90M.
Revenue of $61.1B (+15.5% Y/Y) beats by $160M.
Revenue of $3.93B (+15.2% Y/Y) beats by $120M
Revenue of $3.69B (+8.2% Y/Y) beats by $20M.
Revenue of $3.58B (+31.1% Y/Y) beats by $330M.
PepsiCo (NYSE:PEP) declares $0.9275/share quarterly dividend, 15.2% increase from
prior dividend of $0.805.
Johnson
& Johnson (NYSE:JNJ) unit Janssen Biotech
has acquire privately held BeneVir Biopharm for an undisclosed sum.
The Rockville, MD-based
biotech develops oncolytic viral immunotherapies to treat cancer.
Economics
This Week’s Data
US
Month
to date retail chain store sales growth improved from the prior week.
The
April PMI manufacturing index came it at 56.5, in line.
The
April ISM manufacturing index was reported at 57.3 versus expectations of 58.6.
March
construction spending declined 1.7% versus estimates of a 0.5% increase.
Weekly
mortgage applications fell 2.5% while purchase applications were off 2.0%.
International
The
April UK manufacturing PMI was reported at 53.9 versus forecasts of 54.8.
The
April Japanese manufacturing PMI came in at 53.8 versus consensus of 53.3.
First
quarter EU GDP was up 0.4%, in line, but down from +0.7% in the prior quarter.
Other
Inflation
warning lights are flashing (medium):
The
most recent data on median household income (short):
How
much does infrastructure spending improve an economy? (medium):
The
latest from John Mauldin (medium):
Goldman
fined $110 million for rigging FX market (medium):
What
I am reading today
Social
security myths (medium):
US de-activates anti-ISIS
headquarters in Iraq (medium):
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