The Morning Call
6/7/17
The
Market
Technical
The indices
(DJIA 21136, S&P 2429) drifted lower again yesterday, though again not by
much. That left the Dow below its recent
high; meaning that it is still not confirming the S&P’s break above its
comparable level. So, the near term
technical issue remains which of these divergent trends will change direction
and confirm the other. I still believe that
the Dow will ultimately trade above its high and the Averages will make a run
at the upper boundaries of their long term uptrends (now circa 24198/2753). Volume
rose slightly; breadth weakened.
The VIX (10.1) was
up another 4 ¼ %, ending back above the lower boundary of its intermediate term
trading range, thereby voiding last Thursday break and remaining above the lower
boundary of its long term trading range.
However, it is still below its 100 and 200 day moving averages and in a
short term downtrend.
The long
Treasury was up, closing above its 200 day moving average (if it remains there
through the close on Friday, it will revert to support) and finishing above its
100 day moving average and in a very short term uptrend.
The dollar was
smacked once again, ending in a very short term downtrend and below its 100 and
200 day moving averages.
GLD popped 1
1/8%, closing above its 100 and 200 day moving averages, in a very short term
uptrend and is nearing the upper boundary of its short term trading range.
Bottom
line: ‘TLT, UUP, GLD investors are all betting their money on a weaker economy
and lower rates. That is somewhat at
odds with the equity narrative; but I am not sure that means anything in the
current ‘all news is good news’ atmosphere.
My assumption remains that the indices are headed higher.’
The
volume of M&A activity is declining (short):
Fundamental
Headlines
There
were two datapoints released yesterday: month to date retail chain store sales
growth improved from the prior week and the April JOLTS report showed a big
increase in job openings---the latter causing a good deal of confusion.
Nothing from
overseas.
***overnight,
Spain’s largest bank is taking over the bank I mentioned yesterday that was in danger
of defaulting.
http://www.zerohedge.com/news/2017-06-07/spains-banco-popular-bailed-acquired-santander-%E2%82%AC100
The
rest of the news flow was also quiet.
(1)
Trump held a news conference in which he touted his
fiscal plans.
Ron Paul on Trump’s budget (medium):
Greg Mankiw on tax cuts (medium and a
must read):
https://www.nytimes.com/2017/06/02/upshot/a-tax-cut-might-be-nice-but-remember-the-deficit.html?_r=0
(2)
more discussion on the sudden isolation of Qatar (medium)
***overnight,
Saudi Arabia issues ultimatum (short):
***overnight, (1) the US and Mexico reached an
"agreement in principle" designed to avert a trade war over sugar,
setting the course for bigger talks on rewriting NAFTA and (2) the European
Union is set to unveil proposals today for a new European defense union. The
"nature of the trans-Atlantic relationship is evolving," the EU's
executive arm will say in a "reflection paper" on the future of the
bloc's defense.
Bottom line: yesterday was a typical slow summer day with
little to drive investor attention. Rather
focus seems to be on Thursday which, as I noted yesterday, will be big for
headlines: UK elections, ECB meeting and Comey’s congressional testimony. Usually these highly anticipated news days
turn out to be much less dramatic than are expected. I see no reason why this one will be any
different.
My assumption is
that investors will continue to tip toe through the tulips, pushing equity
prices higher. I continue to monitor our
Portfolios for stocks that are near or entering their Sell Half Range and for
companies with deteriorating fundamentals.
My thought for
the day: it is common for investors to pursue a strategy of averaging down when
an initial purchase isn’t working.
However, it can be dangerous to do so.
Not because it doesn’t work; often it does. But because of what happens when it doesn’t
work, i.e. the investor keeps adding to a position that keeps going against
him/her. It could be the fundamentals
change, it could be other investors have a different idea of valuation. Whatever the reason, it doesn’t matter;
because the stock is still a loser. By continuing
to buy a stock that is going against him/her, the investor is guaranteeing his/her
biggest positions will be losers.
Investing for Survival
How
much can you safely spend in retirement?
News on Stocks in Our Portfolios
Revenue of $887M (-4.9% Y/Y) beats
by $148.58M.
Economics
This Week’s Data
Growth
in month to date retail chain store sales improved from the prior week.
The
April Labor Department JOLTS (job openings) report showed an increase of
259,000 job openings versus expectations of a decline of 11,000.
Weekly
mortgage applications rose 7.1% while purchase applications were up 10%.
Other
Mark
Perry on the trade deficit (medium):
Government
insolvency gets harder to ignore (medium):
Alabama
sees 85% decline in food stamp participation after work requirements reinstated
(medium):
Politics
Domestic
International War Against Radical
Islam
Europe’s
response to terrorist attacks (short):
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