Friday, June 8, 2018

The Morning Call--Well, now we are getting serious


The Morning Call

6/8/18

The Market
         
    Technical

The Averages (DJIA 25241, S&P 2770) traded mixed yesterday (Dow up, S&P down).  Volume rose; breadth was slightly positive.   The Dow finished above its 100 day moving average for a second day (now resistance; if it remains there through the close today, it will revert to support).  The S&P ended above its 100 day moving average (now support).  Both remained 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 resistance from the 100 day moving average seems about to give way with the  Dow ending about its MA and the S&P pushing out of the trading range that developed around its MA.  Assuming follow through, the next resistance levels are the former highs.  Longer term, the assumption is that stocks are moving higher.
               
                The VIX rose 4 ¼ %, but still finished below its 100 and 200 day moving averages (now resistance) and below the upper boundary of its short term downtrend.  This continues to point to higher stock prices.

The long Treasury spiked on heavy volume, ending back above its 100 day moving average voiding Wednesday’s break (now support), but below its 200 day moving average (now resistance).  It remained within its long term uptrend and short term downtrend.

The dollar fell fractionally extending a seven day downtrend but closing above its 100 and 200 day moving averages (now support) and in short term uptrend. 
               
GLD declined, ending below its 100 and 200 day moving average (now resistance) and right on the upper boundary of its short term downtrend.
               
Bottom line:  despite yesterday’s drift, the Averages still appear to be breaking away from their 100 day moving average; if so, then 26656/2874 (former highs) will likely be the next stop and that clearly gives support to the assumption that long term stock prices will go even higher.  The pin action in TLT, UUP and GLD didn’t really didn’t tell us much.
                       
           Yesterday in charts (medium):

    Fundamental

       Headlines

            Yesterday’s economic releases were mixed: weekly jobless claims were lower than anticipated while growth in April consumer credit slowed.

There were few notable headlines yesterday.  But there are a number of newsworthy events occurring soon.  The G7 meeting starts today and next week includes several central bank meetings and the Shanghai summit.
           
At the moment, it looks like the results of the G7 meeting will carry the most import---because trade will top the list for discussion and the outcome could potentially have the most impact on our economy.  At the risk of being repetitious, whether the conclusion is positive or negative it will likely have an effect on the long term economic secular growth rate of our economy.   Listening to the rhetoric leading up to this meeting, one would likely be discouraged.  However, much of that may just be positioning before what everyone expects to be a tough negotiating session.  Perhaps foolishly, I am optimistic.  That said I continue to believe that a trade war is bad news for the economy.

All wrapped up in this issue is that of the sanctions against Iran and how they play of the rest of the G7’s trade with it.  This seems to me to be an even thorny matter.  So I have no clue how this gets solved; but clearly it will bear on the broader trade question.

            The importance of NAFTA (medium):
           
            The trade war is already hurting US and China (medium):

            Reagan on protectionism (medium):

            Is national security a good rationale for steel and aluminum tariffs? (medium):

            We also have three central bank meeting next week (US, ECB, Bank of Japan).  While they all profess to be either on or about to start down the path to tightening monetary policy, I continue to view their statements of intent with skepticism.  True, the Fed had begun the process; but I have little doubt that the minute there is any sign of trouble, it will cease and desist.  That, of course, assumes that it can see a sign of trouble when it is occurring---which it has proven quite incapable of in the past.  Historically, these guys have paid far too close attention to their models and ignored what is happening around them---I refer you to any one of Bernanke’s or Yellen’s statements over the last decade as proof.     My bottom line is that the Fed will raise rates (as is widely anticipated) and we will get nothing but prevarication from the rest.

            Finally, Un and the Donald go one on one next week.  Both these guys are so unpredictable, I have no clue how this summit will turn.  However, my underlying assumption is that the North Koreans will lie and then break any agreement the first chance they get.  So our best strategy is not to give them the chance.

            Bottom line: we are looking at an event filled week which has the potential for some explosive headlines.  That said, we could nothing more than two jerks and wiggle.  Whatever occurs, stocks are still overvalued and the central banks still have to unwind the massive mispricing and misallocation of assets.


    News on Stocks in Our Portfolios
 
Genuine Parts Company (GPC +0.4%) announces to acquire Hennig Fahrzeugteile, German supplier of light & commercial vehicle parts.
Deal terms were not disclosed.
Economics

   This Week’s Data

      US

            April consumer credit rose $9.3 billion versus forecasts of up $14.0 billion.
           
     International

            May German industrial production fell 0.1% versus estimates of +0.3%; France’s declined 0.5% versus expectations of +0.3%.

            First quarter Japanese GDP decreased 0.6%.

            China’ May trade balance was $24.9 billion versus forecasts of $33.3 billion.

    Other

            A great analysis of the social security trust fund math (medium and a must read):

                        Household net worth in the first quarter (medium):

            This is an analysis poo pooing the notion that national is a problem.  It focuses on the magnitude of the debt and the more important number---the magnitude of the debt relative to GDP.

What I am reading today

            Some legal ways to sue your retirement saving early (medium):


                        A look at global demographics (medium):

               
The importance of your time horizon (medium):

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