The Morning Call
6/26/17
The
Market
Technical
There
is not a lot of technically astute observations one can make about this chart
except that the S&P is going up and there are no resistance points between
current prices and the upper boundary of its long term uptrend (2763).
The
long Treasury (128) continues to act well.
With its successful challenge of its short term downtrend, the next
visible resistance is the upper boundary of its newly reset short term trading
range (139). This positive pin action
appears to reflect bond investors’ doubts about the strength in the
economy. Although there is disagreement
on that point.
An interesting thesis on
what is driving bond prices up (medium):
And
(medium):
Now
reverse everything I said about TLT. UUP
continues to act lousy. Having
successfully challenged the lower boundary of its short term uptrend, its next
level of support is the lower boundary of its newly reset short term trading
range. The only thing that is similar is
that it also seems to be pointing to a weaker economy/lower interest rates.
The
good news for GLD is that it bounced up off its 100/200 day moving averages;
plus it has made a third higher low. The
bad news is that it has made two unsuccessful challenges of the upper boundary of
its short term trading range. So while
the GLD’s chart improved last week, I am now watching which resistance/support
level is overcome first.
The
VIX (10.02) was off 4% on Friday despite it being a basically flat day; if it
remains there through the close next Wednesday, the intermediate term trend
will reset to a downtrend. That said, it
closed below the lower boundary of its intermediate term trading range for the
sixth time since mid-April, having been unable to successfully challenge that boundary
on any of those occasions. Given that
the all-time historical low close was 9 3/8, it seems likely that challenge
will be no more successful than the prior six times.
Fundamental
Headlines
The economic
data last week was quite positive and included three primary indicators (new
home sales, existing home sales and leading economic indicators), two of which
were positive and one neutral. That
brings the score to: in the last 90 weeks, twenty-nine were positive,
forty-nine negative and twelve neutral.
While I will take good news over bad any day, (1) there were not a lot
of stats last week and (2) at this point, it appears that the numbers were more
of an outlier than the mark of a change in trend. So I won’t be altering our short term
outlook.
Another factor
for the short term that I am watching is oil.
It has been declining in price based on the economics of supply and
demand; and given the negative impact on economic activity the last time prices
fell markedly, I have no reason to assume that this time will be any
different. That suggests yet another
headwind for the economy. On the other
hand, if the mounting political tensions within the Middle East OPEC members
(Gulf States vs. Qatar; Sunni vs. Shi’a) suddenly become manifest in open
conflict, it would likely reverse this downtrend in a nanosecond. Unfortunately, this scenario is likely less economy/Market
friendly than declining oil prices.
Longer term,
there were a couple of positive developments last week:
(1)
the US banks passed the first stage of the most recent
Fed stress test with flying colors. In
my mind the real benefit of this is that the US economy is less apt to go into
cardiac arrest once the economy/Market hits a speed bump as in 2008/2009. That said, if the banksters can persuade their
bought and paid for political lapdogs to loosen Dodd Frank too much, it could
provide short term economic benefits but would undo, at least, some of the gains
in banks’ financial strength accomplished through those regulations.
(2)
the senate presented its version of a new healthcare
bill. Given the tone of the news
reporting, you may be wondering why I list this as a positive. And the answer is because we went through
this exact same process after house announced it version of a new healthcare
bill---DOA, split GOP, will kill millions and cost money, yada, yada, yada [I
mentioned the bisque]. To be sure, any
or all of those things could shut the process down; not to mention the dems
relentless effort to investigate every corner of Trump’s life in the hopes of
delaying/preventing the passage of the Trump/GOP fiscal program [not that he
hasn’t brought a lot of this on himself].
So I am not getting jiggy here. I
am saying that any step forward, however small in the implementation of that
program is a plus. But, at this stage,
it clearly does not warrant a review/upgrading of our long term secular economic
growth rate assumption.
David Stockman has
another thought on the fallout from Washington dysfunction (medium):
Bottom line: nothing has changed in our short
term or (recently improved) long term economic forecasts. The risks of a weak global banking system, an
inefficient, economically debilitating fiscal policy, a completely f**ked up
monetary policy, potential international confrontations, war, pestilence,
famine and death (just kidding) remain with us as does a grossly overvalued
equity market. You don’t need to run for
the hills; but own some cash.
Goldman
just now figures out the misguided Fed policy creates recessions (medium):
Fundamentals
no longer matter? (medium):
Investing for Survival
Patience
exemplified.
News on Stocks in Our Portfolios
Economics
This Week’s Data
May
durable goods orders fell 1.1% versus expectations of down 0.4%; ex
transportation, they rose 0.1% versus forecasts of +0.5%.
The
May Chicago Fed national activity index came in at -.26 versus estimates of
+.32.
Other
Italy
bails out two failed banks (long):
Politics
Domestic
This article has
clear political overtones. While I try
to avoid this in my commentary, I include it because of the potential effect an
adverse conclusion could have on the economy and the Market (medium):
Update
on senate healthcare bill (medium):
International War Against Radical
Islam
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