The Morning Call
3/23/18
The
Market
Technical
The indices
(DJIA 23957, S&P 2643) were hammered yesterday. Volume rose, and breadth was negative. Both of the Averages closed below their 100
day moving averages; if they remain there through the close next Monday, they
will revert to resistance. In addition,
the Dow finished below the lower boundary of its short term uptrend; if it
remains there through the close next Monday, it will reset to a trading
range. Finally, they are still in a very
short term downtrends.
The question
that I have posed the last couple of days: if
there is more downside, will it be big enough to begin successfully challenging
those moving averages and uptrends? Clearly,
the answer is that it has. However, yesterday’s
challenges have yet to be successful; and there is still plenty of support
lower down. In short, it is way too soon
to be predicting that a high has been made or that momentum is reversing to the
downside.
The VIX soared
31%, ending above its 100 and 200 day moving averages and the lower boundary of
its short term trading range. However, despite
yesterday’s moonshot, it has not yet established a very short term uptrend.
The long
Treasury was up 1% on big volume, enough to confirm the break of a very short
term downtrend. Indeed, if the recent
uptrend continues a couple more days, it will establish a very short term
uptrend. The pin action of the last two days suggests
investors are moving into Treasuries either as a safety trade or the belief
that rates are going lower. Based on
equities performance, you would think that their motivation was the safety
trade. But neither GLD’s nor the dollar’s
action support that notion. That said,
TLT is still below its 100 and 200 day moving averages and in an intermediate
term downtrend. So like stocks, at the
moment, bonds are just in a short term countertrend movement.
The dollar was
up fractionally. Certainly not an
indication that it was being sought out as a safety trade. While it is struggling to stabilize, the
trend remains down.
GLD was down ½ %,
again not what you would expect if investors were running for cover. Further, there may have been some profit taking
after Wednesday’s big move up. It does
remain above its 100 and 200 day moving averages and within a short term uptrend,
which would indicate a bet on lower interest rates and a softer economy.
Bottom line: while
the technicals of the equity market point higher for the long term, some cracks
are starting to appear in that thesis.
Granted these may only be short term issues; but clearly, investors have
to be on alert especially given the recent switch in investor psychology from ‘buy
the dips’ to ‘sell the rips’.
I am confused by
yesterday’s aggregate pin action in TLT, UUP and GLD.
Timing
the consensus fade (medium):
Yesterday
in charts (medium):
Fundamental
Headlines
The
economic releases yesterday were negative in total: weekly jobless claims and
the March Markit flash PMI’s were disappointing, the March Kansas City Fed manufacturing
index was flat and the February leading economic indicators were above
expectations. However, like Wednesday,
the positive indicator was primary; so the reading wasn’t so bad.
There
were lots of other news to consider.
(1)
we got more
details on the new spending bill [I mistakenly stated that the bill had passed. In fact, the house approved it yesterday afternoon
and the senate last night.] That aside,
investors are starting to focus on the impact of higher deficits/debt on
economic growth.
Is ‘crowding out’ returning
with a vengeance? (medium):
(2)
US trade rep
announced details of China trade tariffs (medium):
China, of
course, responded with indignation. But
what did it do? It raised tariffs
totally $3 billion against US goods---as opposed to Trump’s $50 billion. Sounds to me like they are leaving lots of
room for negotiations.
And speaking
of negotiations, Trump suspended the steel/aluminum tariffs on multiple
nations.
Trump
and tariffs (medium):
(3)
it is finally dawning on investors that higher interest
rates and the runoff of the Fed balance sheet might not be such a great thing.
Powell raises doubts about the
value of the yield curve as a recession predictor
(medium):
More
thoughts on the Fed meeting (medium):
The
Fed doesn’t know what causes inflation (medium):
The
latest from Bill Gross (medium):
The
LIBOR rate blowout moves to investment grade credit (medium):
(4)
not helping matters is Trump taking off the gloves with
Mueller (medium):
Bottom line: I
guess we have reached the point where bad news is definitely bad news. Investors got a snoot full of it
yesterday. The problem is that many of
the issues facing the Market are not going to be reversed anytime soon: the
deficit isn’t going away---and if I am correct, its effect will hinder economic
growth; there is no indication that the Fed is going curb its quantitative
tightening anytime soon. Indeed, if
Market rates keep rising, the Fed will be forced to follow---just as it has so
many times in the past; Trump is not going to get less aggressive with Mueller---that
may only get worse.
The only shot
for better news is if the Trump/Chinese trade faceoff dissipates; and that is
the issue that is presently causing the most heartburn. Given what is now happening with NAFTA, the steel/aluminum
tariffs and China’s initial response that doesn’t seem that farfetched. Investors (and I) can only hope.
Cash no longer trash
(medium):
News on Stocks in Our Portfolios
Nike (NYSE:NKE): Q3 EPS of $0.68 may not be comparable to
consensus of $0.53.
Revenue of $8.99B (+6.6% Y/Y) beats by $140M.
Economics
This Week’s Data
US
The
March Markit flash manufacturing PMI came in at 55.7 versus expectations of
55.4, services PMI 54.1 versus estimates of 55.7 and composite 54.3 versus
forecasts of 55.2.
The
February leading economic indicators rose 0.6% versus consensus of up 0.3%;
January was revised down from 1.0% to 0.8%.
The March Kansas
City Fed manufacturing index was reported at 17, unchanged for February’s
reading.
February durable
goods orders rose 3.1% versus forecasts of +1.7%; ex transportation, they were
up 1.2% versus projections of up 0.6%.
International
Other
What
I am reading today
How much savings do you
need? (medium):
The demise of easy pickings
(medium):
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