The Morning Call
3/28/18
The
Market
Technical
The indices
(DJIA 23857, S&P 2612) declined yesterday in another ‘sell the rips’ move. Volume rose (not a good sign); breadth was
negative. Both of the Averages closed
below their 100 day moving averages (now resistance) but above their 200 day
moving averages (though not by much; indeed, it seems likely that this support
level will be tested again today) 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 cloudy.
The VIX was up 7
%, 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.
The long
Treasury was up 1%. However, it is remains
below its 100 and 200 day moving averages and in an intermediate term downtrend---indicating
higher rates in the offing. On the other
hand, it is now in a very short term uptrend---just the opposite. (Is economic growth slowing?)
One
trader’s perspective (medium):
Possible
explanation for the widening LIBOR spreads (medium):
The dollar was up
½ %. Nonetheless, its chart remains
ugly, with UUP trading below its 100 and 200 day moving averages and in an
intermediate term downtrend.
GLD fell ½ %. Again trading counter to its historic inverse
relationship with bonds. It remains above its 100 and 200 day moving averages
and within a short term uptrend.
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%).
I remain confused
by aggregate pin action in TLT, UUP and GLD.
Fundamental
Headlines
Yesterday’s
economic stats were mixed: month to date retail chain store sales and the January
Case Shiller home price index were positive while the March
Richmond Fed manufacturing index and March consumer confidence were
disappointing.
Aside
from the Market volatility, trade remained the story as the White House
announced that Trump is now considering curbing Chinese investments in US
(short):
More thoughts on
a trade war with China (medium):
In
the background remains:
(1)
irresponsible fiscal policy. Trump caved (medium):
Stockman on the increase in military spending
(medium):
(2)
Fed policy.
The value of the yield curve signal
(medium):
Bernanke’s beliefs busted (medium and a
must read):
Bottom
line: bulls and bears seemingly continue to battle it out over the import of
trade, deficit spending and a tightening Fed.
What I appreciate is that, at last, higher deficits and tighter money
are being considered in the equations of economic strength and equity
valuations. You know my opinion on those
issues; but that isn’t what counts. What
matters is what the Market concludes; and that hasn’t yet been determined. Patience.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month
to date retail chain store sales grew faster than in the prior week.
The
January Case Shiller home price index rose 0.8% versus expectations of +0.7%.
The
March Richmond Fed manufacturing index was 15 versus estimates of 22.
March
consumer confidence came in at 127.7 versus forecasts of 131.0.
Weekly mortgage
applications rose 4.8% while purchase applications advanced 3.0%.
The
third revised estimate for fourth quarter GDP growth was reported at +2.9%
versus consensus of 2.7%; the price index was +2.3%, in line; corporate profits
were -6.0% versus the prior reading of +9.8%.
The
February US trade deficit was $75.4 billion versus forecasts of $74.0 billion.
International
Other
The
Philadelphia Fed’s coincident economic indicator (short):
Bureaucratic
inefficiencies (short):
What
I am reading today
Discipline is the best
investment strategy (short):
(Another)
US failure, this time in Syria (medium):
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