Thursday, March 29, 2018

The Morning Call--The Market is the story


The Morning Call

3/29/18

The Market
         
    Technical

The indices (DJIA 23848, S&P 2605) declined slightly yesterday, following the recent pattern of opening up, experiencing huge volatility intraday, then selling off  at the end of the day (see link below).  Volume was flat; breadth was mixed.  Both of the Averages closed below their 100 day moving averages (now resistance) but above their 200 day moving averages (though not by much.  I thought that it would be challenged yesterday, but wasn’t.  A hint of good news) and within very short term downtrends.  The Dow finished in a short term trading range but in intermediate and long term uptrends.  The S&P is in uptrends across all timeframes.  In short, the technical picture has gone from solidly up to a bit cloudy.

                And:

The VIX was up 1 ¼  %, ending in a very short term uptrend, above its 100 and 200 day moving averages and the lower boundary of its short term trading range---suggesting a more volatility. 

The long Treasury continued its strong month long bounce off the lower boundary of its long term uptrend.  It is still below its 100 (but near) and 200 day moving averages and in an intermediate term downtrend.  So the trend remains down but any further advance will start to put that in jeopardy.  In other words, investors are developing conviction that either the economy is weakening (lower interest rates) or there is a negative event coming (safety trade) or, as a trader friend suggests, there is a huge short squeeze going on.

            A poor seven year Treasury auction (short):

            Yield curve flattens further (short):

The dollar was another 1%---which makes sense if there is a safety trade issue, but not if there is a weakening economy.  Its chart remains ugly, with UUP trading below its 100 and 200 day moving averages and in an intermediate term downtrend.

GLD was pounded, down 1 ¼%, giving up almost all of last week’s gains.  And that makes no sense if either rates continue lower or there is a safety trade issue.  It is above its 100 and 200 day moving averages and within a short term uptrend---though it is approaching the lower boundary.
               
Bottom line: investors once again ‘sold the rips’ yesterday.  However, while the technicals of the equity market still point higher for the long term, cracks in this thesis remain. So near term direction is in question.  No matter how you feel about stock valuation, I don’t think that this is a time to be committing cash unless it is in a company whose stock has been decimated (down 30-50%).

The pin action in TLT, UUP and GLD remains confusing.
           
    Fundamental

       Headlines

            Yesterday’s economic stats were weighed slightly to the upside: February pending home sale and weekly mortgage/purchase applications were a plus, revised third quarter GDP growth, price index and corporate profits were mixed and the February trade deficit was a negative.

            The news flow continues to slow ahead of the Easter holiday.  The only headline of substance was a trade agreement with the South Koreans---which, to be sure, is a positive.  As a bonus, a peace process is moving along.  A meeting has been scheduled between the North and South Koreans on 4/27 and the US is set to meet the North Koreans in May---which if it leads to a be-nuked North Korea would also be a plus.  But given history, I wouldn’t be getting jiggy just yet.

            There was more bad news for Facebook (investigations) and a new tweet for the Donald criticizing Amazon.  I mention this because the social media stocks have been a moving force in the last couple of years of the up Market; and a continuing flow of negative news will not help the Averages.

            Bottom line: as I noted yesterday, the real story right now is the Market itself and the standoff between the bulls and bears---with the bears holding the field on a very short term basis.  Nevertheless, to declare victory, they have a lot of major support to overcome plus first quarter earnings season which begins soon and which most pundits believe will be positive.  I await the outcome.

    News on Stocks in Our Portfolios

Economics

   This Week’s Data

      US

            February pending home sales rose 3.1% versus estimates of up 3.0%.

                Weekly jobless claims fell 12,000 versus expectations of down 1,000.

            February personal income was up 0.4%, in line; personal spending was up 0.2%, also in line.

     International

    Other

            Household buying plans take a deep dive (medium):

            More (disappointing) news on student loans (short):

            Apartment vacancy rate increases in first quarter (short):

            Stockman on the possible appointment of SF Fed head Williams to run the NY Fed (medium):

            Pentagon ‘loses’ $3 billion (aka our money) in Afghanistan.  No wonder it needs a bigger budget (medium):


What I am reading today

            Investing in quality companies is a great strategy as long as you do at the right price (medium):

            Investing in an era of distractions (medium):

            The largest organ that we never knew we had (a big long but very interesting):
           

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