The Morning Call
4/3/18
The
Market
Technical
The indices
(DJIA 23644, S&P 2581) nosedived yesterday, though they finished well off
of their lows. Volume was up; breadth negative. Both of the Averages closed within very short
term downtrends, below their 100 day moving averages (now resistance). The S&P ended below its 200 day moving
average; if it remains there through the close on Thursday, it will revert to
resistance. The Dow remained above its 200
day moving average. The DJIA 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 short term
technical picture is getting even cloudier; but longer term, the assumption is
that equity prices will continue to rise.
Update on margin
debt (medium):
The VIX rose 17 ¼ %, closing
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 volatility will
stay with us.
The long
Treasury was off fractionally on big volume, pausing its strong month long
bounce off the lower boundary of its long term uptrend. It is below its 100 (but near) and 200 day
moving averages and in very short term and intermediate term downtrends. I remain confused by what the fundamentals
are behind the recent strong uptrend. Possible
choices---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.
The dollar was down
slightly (again), finishing below its 100 and 200 day moving averages and in an
intermediate term downtrend. UUP continues
to trade in a very tight range, which is not usual when bonds are moving big
directionally.
GLD was up 1 1/8
%, bouncing off the lower boundary of its short term uptrend and remains above
its 100 and 200 day moving averages. While only a one day performance, it is, at
least, acting as it should as interest rates fall
Bottom line: the
technicals of the equity market point higher for the long term. Near term direction is in question. But the Averages have plenty of support at
lower levels, though the S&P is now challenging another one of those
support levels. Still it will take a lot
more technical damage before I question whether or not this bull market is
over.
The pin action
in TLT, UUP and GLD remains confusing.
Update
on valuation (medium):
Fundamental
Headlines
Yesterday’s
new flow didn’t make for good reading:
(1)
February construction spending, the March Markit
manufacturing PMI and the March ISM manufacturing index were all below
expectations,
(2)
the March Japanese industrial outlook and the March Chinese
manufacturing PMI were lower than estimates,
(3)
the Chinese unveiled the list of product on which it
will impose tariffs [these are the products that are incorporated under the $3
billion tariff previously announced],
(4)
Trump kept up the heat on Amazon, which is part of the
latest adverse news trend on the FANG stocks that started last week with
Facebook.
Bottom line: the
chattering class is worried about a trade war; and to be sure, it could
occur. However, I think Trump showed his
hand with the South Korean deal, meaning that I don’t believe a trade war is as
big a risk as many do. That is the good
news.
One more problem
for NAFTA negotiations (short):
On the other
hand, the notions that (1) the US economy is smoking and (2) the Japanese and
Chinese economies are improving, took a hit yesterday. If the reported stats were one off numbers
that wouldn’t be disturbing; but they are not.
The global economy is not as strong as the dreamweavers would have us
believe.
One of the
biggest sources of Market strength in the last two years has been the high tech
stocks. As a group, they have grown in
price (1) to the point that they account for a significant portion to the
S&P index and (2) many are selling at nosebleed valuations. We saw this same situation in 2000 and when
investors got more reasonable about earnings multiples---well we all know what
happened. That doesn’t mean that is
happening now or will occur tomorrow. But, if history is a guide, it will.
So it would
appear that the Market is approaching a point at which the growth rate of
corporate earnings in general may be about to be reevaluated at the same time
as the Market leaders stock prices.
I
like my cash position.
Possible
paradigm shift in the ‘risk parity’ trade (medium):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
February
construction spending rose 0.1% versus expectations of up 0.5%.
The
March Markit manufacturing PMI came in at 55.6 versus estimates of 55.7.
The
March ISM manufacturing index was reported at 59.3 versus forecasts of 60.
International
March
Japanese outlook was 20.0 versus projections of 22.0.
The
March Chinese manufacturing PMI was 51.0 versus consensus of 51.7.
The March EU
manufacturing PMI came in at 56.6 versus expectations of 58.6; German and
French manufacturing PMI’s were also disappointing.
Other
Must
read article by Carmen Reinhart (Reinhart & Rogoff) on debt and economic growth
(medium):
Another great article;
this one on trade misconceptions (medium):
Latest
from John Mauldin (medium):
Update
on auto loans (medium):
First
quarter ‘off the grid’ economic indicators (medium):
What
I am reading today
Saudi crown prince admits
that Saudis financed terrorist groups (medium):
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