Tuesday, June 19, 2018

The Morning Call---I'll raise you $200 million


The Morning Call

6/19/18

The Market
         
    Technical

The Averages (DJIA 24987, S&P 2773) were down big in early trading, then spent the rest of the day trying to recover---which they did partially.  Volume was about the level of last Thursday (I am ignoring Friday’ quad witching); breadth was negative.  Both finished above their 100 (though the Dow is nearing its MA) and 200 day moving averages (now support).  The Dow is in a short term trading range, the S&P in a short term uptrend.  Longer term, the assumption is that stocks are moving higher.
               
                The VIX was up 3 %, but still ended below its 100 and 200 day moving averages (now resistance).  However, it is back above the upper boundary of its short term downtrend (for the second time in the last five trading days).  If it remains there through the close on Wednesday, it will reset to a trading range (which would the second time in June)---suggesting that it is trying to find a bottom.  Remember that at current price levels, institutional investors are buying it for portfolio insurance. 

The long Treasury was down slightly, finishing above its 100 day moving average and the lower boundary of its long term uptrend but below its 200 day moving average and in a short term downtrend.  While the pin action last week indicated that the turmoil in trade is driving investors to it as a safety trade, it is still facing the aforementioned resistance levels.  

The dollar was flat, closing well above both moving averages and in a short term uptrend.  Like TLT, it seems to be currently acting as a safety trade.

On the other hand, GLD, which has long been a safety trade, was down ¼ % after being hammered on Friday, ending below its 100 and 200 day moving averages and below the lower boundary of its newly reset short term trading range.  I have no explanation for this performance.
               
Bottom line: trade worries appeared to be hanging around as the tit for tat tariff threat exchanges between the US and China escalate.  However, they seemed contained yesterday in stocks, the long bond and the dollar. GLD’s action continues to confuse me.  I repeat my conclusion from last week:  After a week heavily ladened with important economic developments, much of them negative, the price action in stocks suggest more upside.

    Fundamental

       Headlines

            Only one minor datapoint was released yesterday: the June housing index was pretty bad.
           
            Trade/tariffs remain center stage in investor concerns, though there were no headlines yesterday.

            Just the fear of a trade war is impacting trade (medium):

            ***overnight, Trump is threatening tariffs on an additional $200 million of Chinese products.

Bottom line: the outcome of the barrage of tariff threats will have a major impact on secular economic growth or the lack thereof.  Given the current aggressive tariff rhetoric, prospects for higher growth do not look all that great.  And if I am correct about Trump’s intent (dismantling the post WWII political/trade paradigm.  See Saturday’s Closing Bell for more info), this is likely to be a more complicated and painful process that just arguing over relative tariff levels.   We are not there yet; but this is, in my opinion, a growing risk to global economic growth.

    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

            The June housing market index was reported at 68 versus forecasts of 78.


                        May housing starts rose 4.9% versus expectations of up 2.5%; building permits fell 4.6% versus estimates of being flat.      

     International

    Other

            Update on the consumer credit cycle (medium):

            We won’t know the final lessons of QE until it’s over (medium):

            China curbs credit, economic growth slows (medium):

            Hotel occupancy rates down slightly (medium):

What I am reading today

            The 5% rule (short):

            Spousal benefits of social security (medium):

            The number one rule in investing (medium):

            Commissions matter (medium):

            Myths of stocks in the long run (medium):

            The latest on bitcoin (short):

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.