Thursday, June 21, 2018

The Morning Call--Good news from overseas


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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