The Morning Call
6/21/18
The
Market
Technical
The Averages
(DJIA 24657, S&P 2767) took a bit of a rest yesterday, closing mixed on the
day (Dow down, S&P up). Volume declined;
breadth continued weak. The Dow finished
slightly below its 100 day moving average (now support; if it remains there
through the close on Friday, it will revert to resistance) while the S&P
remained above (now support). Both ended
above their 200 day moving averages (now support). The Dow is in a short term trading range, the
S&P in a short term uptrend.
The VIX was down 4 %, closing
below its 100 and 200 day moving averages (now resistance). However, it finished above the upper boundary
of its short term downtrend for a third day, resetting to a trading range (which
is the second time in June)---suggesting that it is trying to find a bottom.
The long
Treasury was down 7/8 %, closing above its 100 day moving average and the lower
boundary of its long term uptrend but continued its retreat below its 200 day
moving average and remained in a short term downtrend. Clearly not in line with
its recent refuge as a safety trade.
The dollar was up
fractionally, ending well above both moving averages and in a short term and very
short term uptrends.
GLD was pounded
again, finishing below its 100 and 200 day moving averages and in a short term downtrend.
Bottom line: trade
went from a four inch to a one inch headline yesterday; and stocks took something
of a break. However, the Dow began a[S1]
challenge of its 100 day moving average which, if successful, would be the
first technical damage done since trade worries became a primary concern. But it is way too soon to become negative
much less alter my assumption that long term stocks are going up.
On the other
hand, bonds and the dollar again traded at odds with other; and gold declines
not matter what the news or the pin action in other indicators.
Yesterday
in charts (short):
Fundamental
Headlines
Yesterday’s
economic data were slightly positive: weekly mortgage and purchase applications
and the first quarter trade deficit were upbeat but May existing home sales (primary
indicator) were abysmal.
Finally,
a day without a tariff threat. Indeed,
there was a bit of good news from German auto makers who told a US trade
representative that they would be fine with a reduction in EU tariffs on the US
cars as long as the US didn’t hit them with increased tariffs. Of course, it is not within their power to
control EU tariffs but it is certainly a hopeful sign that EU companies are
recognizing the validity of Trump’s position.
I think that is the whole purpose of his strategy, isn’t it? Now what will the EU politicians do?
***lots
of news overnight:
Chinese
officials approach US on trade issues (medium):
The Bank of England met
and left rates unchanged, though the accompanying narrative was more hawkish
than anticipated, raising the odds an August hike. It will maintain its bond buying program.
The EU Trade Commissioner
said that the EU is ready to engage with the US to solve the trade problem.
Bottom line: just
because it was a slow day for trade news doesn’t mean the battle is over---though
clearly the overnight news was a big plus.
More likely, it is a between rounds respite in a prize fight. That doesn’t necessarily mean that stocks
will tank but it almost surely means continued volatility.
I continue to
think that the major unknowns are (1) whether or not our trading partners
realize that the world is changing and either accept it or get dragged into it
and (2) how much more difficult Trump will make the process by unnecessary
bluster.
So far, at least, equity investors have
remained reasonably sanguine about the outcome.
But if the process gets prolonged, then earnings estimates are going to
start coming down and that usually is not a plus for stock prices. It sure makes sense to me to have cash in one’s
portfolio; and this is an excellent time to be raising it while prices are
still in an uptrend.
The
latest from Doug Kass (medium):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
May
existing home sales fell 0.4% versus expectations of a rise of 0.7%.
Weekly jobless claims
fell 3,000 versus estimates of a 2,000 increase.
The
June Philadelphia Fed manufacturing index came in at 19.9 versus forecasts of
28.0.
International
Other
Will
a trade war derail the economic rebound? (medium):
How
late in the economic cycle are we? (short):
In
praise of neo-liberalism (medium):
Deutschebank
discloses spectacular loss (medium and if you are worried about bank fragility,
a must read):
Merkel
and Macron’s ‘plan’ (medium):
Gresham’s
Law and Bitcoin (medium):
Chinese
investments in US plunge (medium):
What
I am reading today
The
most popular age to take social security (short):
Too big to be simple) (medium):
On financial post traumatic stress
disorder (medium):
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