The Morning Call
5/29/18
The
Market
Technical
The
S&P was basically flat on the week.
Importantly, it held above its 100 day moving average (which the Dow did
not). Both Averages need to be in sync
in order to assume any short term upside momentum. Longer term, the trend is up.
The
long Treasury bounced dramatically. It
is still in a short term downtrend but closely slightly above its 100 day
moving average (now resistance; if it remains there through the close tomorrow,
it will revert to support). Much more
important, while it confirmed the resetting of its long term uptrend last
Monday, it then soared Wednesday through the Friday to close well above the
lower boundary of that long term uptrend.
For the moment, I am going to regard that break to the downside as a
false flag, so the long term uptrend is intact.
However, if there is any kind of quick sell off below that lower
boundary, I will amend that call. The
reasons behind the three day price surge appeared to be a combination of (1)
dovishly interpreted FOMC minutes last Wednesday [rates lower, longer], (2) the
seemingly breakdown in the US/North Korea talks [safety trade], though they now
appear to be back on, (3) increased turmoil in the Italian government and (4) a
massive short position in TLT which traders scrambled to cover.
The
dollar continued its climb, having confirmed a reset of its intermediate term
trading range and has developed both a short term uptrend and very short term
uptrend. It is a bit surprising that it
didn’t falter even slightly in face of the explosion in TLT (lower rates). But if you assume that much of the upward
momentum in TLT was either a safety trade or short covering, it is
understandable, especially in light of economic weakness and political turmoil
in Europe (Italy and Spain).
Gold staged a
weak rally on Thursday, certainly less than I would have expected with yields
dropping and disconcerting news out of North Korea and Europe. Momentum remains to the downside.
The
VIX traded in a fairly narrow range last week, though it remains in an overall
downtrend---pointing to higher stock prices.
Fundamental
Headlines
The
overall economic data was mixed last week, though the primary indicators were
negative. There was a bright spot in
some of the May manufacturing stats, so that could be presaging some improvement. Nevertheless, my call for the week is
negative. At this point the score: in
the last 137 weeks, forty-six were positive, sixty-four negative and twenty-seven
neutral. Hence, no reason to consider
altering our economic forecast.
Overseas,
the story remained the same---weak numbers out of Europe and Japan.
The drama
unfolding in southern Europe (medium):
As
I noted above, the FOMC released the minutes from its last meeting. As always there was the double talk, hedging
and on the one hand/on the other hand narrative---talk about all the reasons to
raise rates but equivocate on the timing.
The Market seems to have interpreted this as dovish. So what else is new?
Bottom line: the economy
continues to limp along, all the happy talk on the Street aside. Stocks are overvalued, even if the economy
was doing better. The fly in the
ointment is gross mispricing of assets and the consequences of correcting that
problem especially as regards the massive level of debt held by the government,
industry and the consumer.
America’s debt problem
(medium):
News on Stocks in Our Portfolios
Economics
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International
Other
What
I am reading today
US/North Korea summit
appears to be back on (medium):
Four ways to cut
spending in retirement (medium):
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