The Morning Call
4/24/18
The
Market
Technical
The indices
(DJIA 24448, S&P 2670) traded mixed (Dow down, S&P up) yesterday. Volume declined; breadth was much weaker than
implied by a flattish Market. The S&P ended within a very short term downtrend
while the Dow has negated its downtrend. Both finished below their 100 and 200 day
moving averages. The DJIA closed in a
short term trading range but in intermediate and long term uptrends. The S&P is in uptrends across all
timeframes. The short term technical picture remains cloudy. Longer term, the assumption is that equity
prices will continue to rise.
The VIX was down slightly
but remained above its 100 and 200 day moving averages (though not by much) and
the lower boundary of its short term trading range.
Like equities, the
long Treasury rested after a dramatic two day plunge. It continues to trade below its 100 and 200
day moving averages and in a short term downtrend. TLT is approaching the lower boundary of its
long term uptrend with momentum to the downside.
Paying
attention to the long bond (medium):
How
important is the 3% yield barrier? (medium):
The
return of the bond vigilantes (medium):
The dollar is on
a big three day run to the upside, finally responding to moves in the long
bond. It ended above the upper boundary of
its intermediate term downtrend for the second day (if it remains there through
the close on Wednesday, it will reset to a trading range and above its 100 day moving
average (if it remains there through the close on Wednesday, it will revert to
support). UUP remains below its 200 day
moving average but it is very close to challenging it.
GLD was down 1%,
finishing below the lower boundary of its short term uptrend (if it remains
there through the close on Wednesday it will reset to a trading range). It remained above its 100 (though it is
close) and 200 day moving averages.
Bottom line: yesterday,
I posed the question, was the dramatic change in direction last Thursday/Friday
for most of the indicators a sign of a major shift in the economic/Market
narrative or just noise. Yesterday’s pin
action did little to address that question; but clearly, there is going to be
follow through in one direction or the other.
***the
pin action overnight suggests the answer is noise. Still follow through.
More
on rising oil prices (medium):
Yesterday
in charts (medium):
Fundamental
Headlines
Yesterday’s
economic data was positive: the April flash PMI’s were better than expected as
was March existing home sales; though the March Chicago Fed national activity
index was disappointing.
Overseas,
the EU flash PMI’s were also upbeat on balance.
The
pin action in the bond market has sharpened investor focus on interest rates
and Fed policy; and that is where most of the Market commentary both TV and
written has been centered. The concern
being (1) rising interest rates make bonds more competitive with stocks, (2)
and when accompanied by a flattening in the yield curve, portend recession, (3)
especially at a time that [a] commodity prices are spiking {inflationary
pressures} putting additional pressure on the Fed to keep raising rates and [b]
the substantial amount of new funds will be required to finance our absurd budget
deficit and pay for the Treasuries that the Fed is rolling out of {i.e. the end
of QE}, (4) in the face of slowing economic activity.
I am not saying
that stagflation (slowing growth and higher inflation) is necessarily in our
future. However, I continue to point to
the (1) decline in the rate of economic growth and (2) the huge schedule of
Treasury financing requirements. At this
point the rest is speculation: a continuing rise in interest rates [whether
induced by the Market or the Fed or both], an inverted yield curve and commodity
price induced inflation. At the moment,
all I can do is sit back and watch the dataflow. Although the chorus of economic/Fed skeptics
is growing.
Also
in the background is the worry over a trade war with China. As you know, I have always thought that Trump
was just pursuing his ‘art of the deal’ strategy and ultimately, the China and
US would reach a satisfactory resolution to their trade issues. Of course, that is one man’s opinion and
certainly there are many who disagree.
Hence, the undertone of trade/tariff concerns.
Bottom line: my
fundamental unease is with the performance of the economy (which has not been
awe inspiring of late), the direction of inflation (which commodity prices as
well as the long bond are starting to point to the upside) and Fed policy (which
is tightening). That combo,
historically, has not been great for stocks.
I am very comfortable with my cash position.
Trumpian
uncertainty (medium):
The
latest from Jeff Gundlach (medium):
Subscriber Alert
In
my quarterly review of companies, IBM failed to meet the minimum financial
strength criteria for inclusion in the Dividend Growth Universe and accordingly
is being Removed. It was once on the
Dividend Growth Buy List, but no shares were ever purchased.
News on Stocks in Our Portfolios
Canadian National Railway (NYSE:CNI): Q1 EPS of C$1.00 in-line.
Revenue of C$3.19B (-0.6% Y/Y) beats by C$30M.
Canadian National Railway (NYSE:CNI) declares CAD 0.455/share quarterly dividend, in line with
previous.
Economics
This Week’s Data
US
The
April Markit flash manufacturing PMI was 56.5 versus forecasts of 55.2, the
services PMI 54.4 versus 54.5 and the composite PMI 54.8 versus 54.6.
March
existing home sales rose 1.1% versus consensus of a fractional decline.
International
The
April German business climate index was reported at 102.1 versus expectations
of 102.6.
Other
Recession
odds low but rising (short):
Rising entitlements are
the problem with the budget (medium):
John
Mauldin on trade relations with China (medium):
ECB
capitulates on banking reform (medium):
What I am reading today
Wells Fargo fined another
$1 billion; but still no one has gone to jail (medium):
Trading one risk for
another (medium):
Casualties of your own
success (medium):
The pension crisis (medium):
Update on developments in Bitcoin
land (medium):
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