The Morning Call
3/16/18
The
Market
Technical
The indices
(DJIA 24873, S&P 2747) turn in a mixed performance yesterday (Dow up,
S&P down). Both have made a second lower
high; that keeps the very short term momentum to the downside. It also adds to a developing pattern in which
stocks open up strong, then sell off the remainder of the day. It is too soon to know if investor psychology
has switched from ‘buy the dip’ to ‘sell the rip’; but it seems to be occurring.
Volume was down
and remained at a low level. Breadth was
mixed. Today is a quad witching; and
historically, the March version has been positive. That may, at least, partially account for
yesterday’s pin action and may indicate what today will look like.
The indices are above both moving averages
and within uptrends across all major timeframes. The technical assumption is that
long term stocks are going higher.
However, the indices are now stuck in a narrowing range defined by lower
highs and higher lows. In addition, they
need to overcome their former all-time highs before we have an all clear
signal.
The VIX was down
3 ¾ %. While the intraday stock price
volatility continues to be high, the VIX’s price action has been relatively
subdued---a plus for stocks, which is a counter argument to the ‘sell the rips’
scenario.
The long
Treasury was unchanged, but negated its very short term downtrend. That is something of a plus though longer
term the momentum remains to the downside.
I suggested yesterday that the recent strength in bond prices may be
indicating a shift in investors’ sentiment from stronger to weaker economic growth. A lot more upside is needed to confirm such a
change in attitude.
The yield curve
continues to flatten (medium):
The dollar was up
slightly, apparently helped by the new NEC chief Larry Kudlow in which he
extolled the virtues of ‘king dollar’ and urged investors to sell gold. However, it didn’t do much to improve an ugly
chart.
GLD was down
fractionally (see above). It is nearing
the lower boundary of its short term uptrend, which if breached would
definitely slow the current upward momentum.
Bottom line: the
technicals of the equity market point higher for the long term; though very
short term the pin action suggests some more downside. Bond investors took a rest while Kudlow seems
to have worked a little magic on UUP and GLD.
Fundamental
Headlines
Yesterday’s
economic data was slightly to the negative side: weekly jobless claims and the
NY Fed manufacturing index were better than expected while the March housing
market index, the March Philly Fed index and February import/export prices were
worse. So again, it looks like we are
headed for a negative week. However,
today will also be busy and will include two primary indicators.
Yesterday
was not much of a news day. Although
Peter Navarro, Trump’s chief trade advisor and sponsor of the new ‘tariff’
strategy, kicked off the day with an interview in which he made the ‘our
trading partners know they are screwing us, so they will fold on the trade
issue’ argument. That is certainly a
possibility. But as I have noted, that
strategy, even if correct, will likely involve a very rough ride especially
with regards to China and IT theft; plus it carries a reasonably high risk of
unintended consequences.
Bottom
line: I continue to believe that the economy is not as strong as the consensus thinks. I also believe that a second tax cut will not
be pro-growth. And finally, while I support
Trump going after China for its theft of US intellectual property, the
resolution of this problem could prove thorny.
Cash
is good.
News on Stocks in Our Portfolios
Revenue of $1.33B (+8.1% Y/Y) beats by $20M.
Economics
This Week’s Data
US
The
March housing market index was reported at 70 versus expectations of 72.
February
housing starts declined 6.9% versus estimates of -3.0%.
International
Other
The
latest from Lacy Hunt (medium and a must read):
Moody’s
warns of increasing bankruptcies in retail (medium):
What
I am reading today
Understanding
a messy world (medium):
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