The Morning Call
3/27/18
The
Market
Technical
The indices
(DJIA 24202, S&P 2658) executed a Titan III formation yesterday, though volume
fell (not a good sign). Breadth improved,
but there are still some negative readings (not a good sign). Both of the Averages (1) bounced hard off their
200 day moving averages [a plus], but (2) closed below their 100 day moving
averages for the third day, reverting to resistance, (3) the Dow finished below
the lower boundary of its short term uptrend for the third day, resetting to a
trading range and (4) both are in very short term downtrends.
Clearly,
equities avoided an important trend change.
On the other hand, all support levels that were being challenged turned
negative. As is often the case, the key
at the moment is follow through.
The VIX fell 15 ½
%, not surprising on a 600 point up day on the Dow. However, it still ended above its 100 and 200
day moving averages and the lower boundary of its short term trading range. In addition, it continues to develop a very
short term uptrend.
The long
Treasury was down, probably the result of a big Treasury offering, a condition
that will become more and more common.
It is remains below its 100 and 200 day moving averages and in an
intermediate term downtrend---indicating higher rates in the offing.
The dollar was down
½ %, moving toward the lower end of a recent support range. Its chart remains ugly, with UUP trading
below its 100 and 200 day moving averages and in an intermediate term downtrend.
GLD popped
another ½ %. I thought that a bit
unusual given the declining fears of a trade war and a falling TLT (higher
rates). It remains above its 100 and 200 day moving averages and within a short
term uptrend.
Bottom line: while
the technicals of the equity market point higher for the long term, some cracks
are starting to appear in that thesis. Despite
yesterday’s moonshot, both indices’ 100 day moving averages reverted to
resistance and the Dow’s short term uptrend reset to a trading range. So the potential remains for further
loses. The issue today is, will
investors ‘sell the rip’?
I remain confused
by aggregate pin action in TLT, UUP and GLD.
Confused
trader (medium):
Fundamental
Headlines
Yesterday’s economic
releases were mixed: the February Chicago Fed’s national activity index was
much better than expected while the March Dallas Fed manufacturing index was
well below estimates.
Trade was the
primary focus yesterday, as comments from Mnuchin on Chinese trade talks were
hopeful (medium):
However,
trade is only one of the problems facing the economy right now. Last week’s spending bill remains an
irresponsible piece of fiscal policy---one that will not lead to growth but to
stagnation as servicing the enormous national
debt will ‘crowd out’ growth capital. In
addition, the Fed is proceeding with its quantitative tightening which (1) makes
the aforementioned financing of the national debt all the more difficult and
(2) moves the moment of truth forward when asset mispricing and misallocation
start to unwind.
Bottom
line: the rattling effect of Trump’s trade language notwithstanding, it seems
to be working. Progress is being made
with NAFTA, the EU and South Korea.
Clearly, further developments could reverse some or all of that of that
headway. Ditto with China. However, if the Donald is successful (and
further along we go, the more likely it seems to be), then that should prove a
plus for the long term secular growth rate of the economy, just as his
dismantling of government regulations have.
To be sure, ‘if’ is the operative word; but there is reason to be
hopeful.
On
the other hand, at least two major economic problems still exist, i.e. the growing
deficit/debt and the Fed. The former is an
offset force for long term secular growth; and the latter is a shorter term
cyclical issue. Finally, there is the
matter of valuation; that is, how does one price the impact of the above items. My Valuation Model places current prices well
above historic valuation levels. Hence,
my bias toward owning a decent size cash position in my Portfolios.
More
on valuations (medium):
Plus,
the simple math of forward returns (medium):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
March Dallas Fed manufacturing index came in at 21.8 versus expectations of
30.9.
International
March
EU business confidence fell for the third month in a row.
Other
NY
Fed introduces a new gauge for inflation (medium and a must read):
The
Fed’s ‘dot plot’ is bad news for consumers (medium):
The
EU’s deepening political divide (medium):
ECB
finds E10 billion in loan miscalculations (medium and a must read):
CBO
data on income growth (short):
More
on rising credit spreads (medium):
What
I am reading today
Saving
the shrinking middle class (medium):
The person who is best at lying to
you is you (medium):
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
No comments:
Post a Comment