The Morning Call
5/3/18
The
Market
Technical
The indices
(DJIA 23924, S&P 2635) ended down on the day. Volume was flat; breadth poor. That
puts them back near their 200 day moving averages. The S&P finished below the upper boundary
of its very short term downtrend (the Dow ended below the upper boundary of its
former very short term downtrend). Both closed below their 100 day moving
averages (now resistance). 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 rose 3 %, but
still ended below its 100 day moving average (now 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 fractionally, leaving it just above the lower boundary to its
long term uptrend. It remained below its
100 and 200 day moving averages and in a short term downtrend.
Are corporations
adding to pressure on interest rates? (medium):
The dollar was
up another ½ %, pushing it close to the upper boundary of its newly reset intermediate
term trading range, above its 100 day moving average (now support) and above
its 200 day moving average (now support).
GLD fell
fractionally, finishing below its 100 day moving average for a third day,
reverting to resistance. It closed right
on its 200 day moving average (now support) and in a newly reset short term
trading range.
Bottom line: the
Averages continue to bounce around inside a narrowing range bounded by their
200 day moving averages on the downside and the upper boundaries of their very
short term downtrends on the upside (I know, the Dow negated this trend; but
remained there for only one day. So I think
that there is a good argument that the break was a false flag.). 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 is nearing
another challenge of the lower boundary of its long term uptrend, having lost
most of its recent upside momentum. A
break would point to higher long term interest rates. That explains the pin action in both the
dollar (which is soaring) and gold (which is challenging several support levels). 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
There
was only two economic releases yesterday.
One tertiary---weekly mortgage and purchase applications were down; and
one secondary---April ADP private payroll report was upbeat.
Overseas,
the numbers continue to be neutral to negative: the April UK manufacturing PMI was
below estimates, the Japanese manufacturing PMI was above; while first quarter
EU GDP grew at one half the rate as fourth quarter 2017.
Of
course, everyone was waiting for the results of the FOMC meeting. As expected, it left rates unaltered. The narrative in the following statement didn’t
change all that much, though (1) it was a bit less enthusiastic about economic growth
[what? what?; it is actually looking at the numbers?] and (2) it did suggest that
even if inflation were to modestly exceed its 2% target, the Fed would be
unlikely to adjust its policy. In other
words, it wasn’t going to do anything to upset the Markets by more aggressively
tightening unless really provoked. On
short, it was a mildly dovish.
The
statement:
https://www.zerohedge.com/news/2018-05-02/fomc-leaves-rate-unchanged-hawkish-inflation-dovish-growth
Street
reaction:
One other noteworthy
item, Apple reported very good earnings after the close on Tuesday; and that
had a positive impact of Apple stock yesterday but had no influence on the
Market.
Mnuchin
is on his way to China to begin negotiations on resolving the trade issue; that
is the good news. The bad news is that
the rhetoric between the US and China grew more heated,
Bottom
line: a year ago, a Fed statement that played down the rate of economic growth
rate and was dovish regarding rate hikes would have had the Dow up 200
points.
A year ago, if a
high tech company (Apple) reported a great quarter, the entire Market not just
the stock of the company, would have reacted positively.
I recognize that conditions change; and that
is my point. We are no longer in a goldilocks environment. The economy may be rolling over. Inflation is rising and the Fed is scared to
death that it could get out of control and force its hand.
At the moment, it
is not certain that economic growth has peaked or that inflation will push well
passed 2%. But the evidence is
increasingly pointing in that direction.
And that is, in my opinion, why investors may have the willies.
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.
The
stats on April dividends (short):
Update
on the Buffett indicator (short):
News on Stocks in Our Portfolios
Revenue of $4.22B (+42.1% Y/Y) beats by $100M
Economics
This Week’s Data
US
The
April ADP private payroll report showed job increases of 204,000 versus
expectations of 190,000.
The March US
trade deficit was $49.0 billion versus expectations of $49.9 billion.
Weekly
jobless claims rose 2,000 versus estimates of up 25,000.
First
quarter nonfarm productivity was up 0.7% versus forecast of up 0.9%; however,
fourth quarter 2017 was revised from 9.9% to +0.3%.
First
quarter unit labor costs rose 2.7% versus consensus of +3.0%.
International
April
EU CPI was up 1.1% versus projections of up 1.2%.
April
UK services PMI came in at 52.8 versus expectations of 53.5.
Other
The
US economy is losing steam (medium):
Some
evidence that the tax cut did stimulate capital spending (short):
What
I am reading today
IAEA
refutes Israel’s claims regrading Iran’s nuclear program (medium):
24 rules for success
(medium):
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