The Morning Call
4/9/18
The
Market
Technical
After
a see saw week, the S&P ended the week on a down note, preparing to
challenge its 200 day moving average for the fourth time. Given the overwhelming volume of support
(moving averages and uptrends), the assumption remains that stock prices are
heading higher. However, if the S&P
successfully challenges its 200 day moving average, the next level of support
is 200 points lower.
What
was behind Friday’s afternoon sell-off? (medium):
The
long Treasury had a volatile week but continued to trade in a narrowing range
bounded by its moving averages on the upside and the lower boundary of a very
short term uptrend on the downside. At
the moment, bond investors appear to be betting on lower rates (higher prices) which
would be in line with the poor economic numbers we have been getting of late.
The
dollar still isn’t experiencing the volatility that is apparent in the other
indicators. It is near challenging
numerous resistance level, more by virtue of their downward trajectory than by
its own upward course. I am not sure what
to make of this performance except that no one may be willing to make a big bet
on the dollar until the uncertainty being demonstrated by the price action in stocks,
bonds and gold is resolved.
Like
equities and bonds, GLD is struggling to maintain prior momentum and its
resolution will likely be dependent on equities and bonds. At the moment, its pin action suggests lower
stock and bond prices.
The
VIX is building an ascending wedge formation (unable to make a new high, making
progressively higher lows). Like every
other pattern of this kind, however it is resolved tends to have follow through
in the direction of the break. In this
case, there is lots of support (both moving averages and a very short term
uptrend). So the assumption is that it
will be resolved to the upside.
Fundamental
Headlines
Last week’s
economic stats were overwhelming negative and that included three primary
indicator. Score: in the last 130 weeks,
forty-four were positive, sixty-one negative and twenty-five neutral.
That
was matched by the overseas dataflow which was lousy from all major economic
entities (EU, Japan, China).
The
bottom line: our forecast of a struggling economy seems more right than
ever. Not that the dream of a ‘synchronized
global recovery’ has gone away, but it appears increasingly to be a wet one.
Most of the Market
volatility was a function of investors seeming inability to figure out Trump’s
trade strategy (is he bluffing or not?); at one time assuming that he is
bluffing (Market up) followed by one in which they assume that he is not (Market
down). That volatility is probably not
going away until investors make up their minds because Trump will likely
continue to beat them over the head with his unending flow of tweets.
Meanwhile, the
economic numbers coming in from all corners of the globe are concerning, at the
very least. Plus first quarter earnings
season is about to start; and analysts have gotten jiggy with it as a result of
the tax cuts. So the question is, will
investors continue to largely ignore this other data as they stew over trade
issues?
First
quarter earnings expectations (medium):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
International
Other
Fed
policy is now restrictive (medium):
Yellen
on the federal deficit (medium):
Update
on auto loans (medium):
Update
on big four economic indicators (medium):
What
I am reading today
Six
lessons from Ed Yardini (short):
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