The Morning Call
4.4.18
We are off to attend a wedding of
a close friend. Be back next Monday.
The
Market
Technical
The indices
(DJIA 24033, S&P 2614) rebounded yesterday. Volume was down (continuing the
pattern of high volume on down days, lighter volume on up days); breadth was
mixed. Both of the Averages closed
within very short term downtrends and below their 100 day moving averages (now
resistance). Perhaps the most
significant technical development of the day was the S&P closing back above
its 200 day moving average, negating Monday’s break. It was also the third time it has unsuccessfully
challenged this level---indicating the strength of support. 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. The short term technical picture remains cloudy; but longer term,
the assumption is that equity prices will continue to rise.
The VIX declined 10 ¼ %, but
still ended 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 fell ¾ % on big volume, dropping further but remaining within its
strong month long bounce (very short term uptrend) off the lower boundary of
its long term uptrend. It continues to trade below its 100 and 200
day moving averages and in a short term downtrend. I remain confused by what the fundamentals
are behind the recent strong uptrend.
The dollar was up
slightly (again), but finished 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 down ¾ %,
but still closed above the lower boundary of its short term uptrend and its 100
and 200 day moving averages.
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. Plus that the S&P
finish above its 200 day moving average, voiding Monday’s break, is a
positive. It will take a lot more
technical damage before I question whether or not this bull market is over.
The biggest short
term question on my mind is will investors continue to ‘sell the rips’?
The pin action
in TLT, UUP and GLD traded in their normal correlation for the first time in a
while.
Fundamental
Headlines
The
US economic data was upbeat yesterday: month to date retail chain store sales
grew faster than in the prior week and March light vehicle sales were stronger
than expected. While the latter was
greeted with much enthusiasm, I have a tough time rationalizing it with the
other data we have gotten on delinquencies and used car sales---unless the auto
companies are just selling to any warm body that walks in the door.
On
the other hand, the stats out of Europe continue to be disappointing. At one point, I thought that the improving EU
economy would be a plus for US growth.
While I haven’t changed that forecast, it is becoming debatable.
The
only other news item of any importance was a headline from Bloomberg that Trump
was not considering any formal action against Amazon (one of the Fang
stocks). I suppose that is a positive in
that the President is not going to use his office in a vendetta against a
single company (or its owner).
Unfortunately, the whole episode is a negative because it does show the
Trump is willing to use the office to attack specific companies (owners) on something
other than criminal activity.
***overnight, US
and China ramp up tariff war (medium):
Bottom line: the
global economy keeps coughing up bad news.
The EU, China and Japan all seem to be slipping back toward slower
growth/stagnation. If this trend
continues, it will clearly not help our attempts at improving growth---if
indeed those latest efforts are pro-growth.
Trump backing
off his attack on Amazon has little to do with the underlying problem with the
high tech stocks. They are grossly
overvalued, suggesting mean reversion sometime in their future. That also applies to the indices, given the
tech stocks statistical importance them.
I
like my cash position.
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.
March
light vehicle sales totaled 17.5 million units versus estimates of 16.7
million.
Weekly
mortgage applications fell 3.3% while purchase applications were down 2.0%
The
March ADP private payroll report showed a job increase of 241,000 versus
forecasts of up 185,000.
International
February
German retail sales fell 0.7% versus forecasts of +0.6%.
Other
Mall
vacancies at six year high (medium):
2018
median household income (short):
The
Philadelphia Fed’s state coincident indicators were up.
Framing
lumber prices up sharply (medium):
Here
is the counter argument to my concerns over the size of the national debt. The author fails to mention that (1) financing
a deficit that equal 10% of GDP when the national debt is 30% of GDP is
different from financing a deficit that equals 10% of GDP when the national
debt is 105% of GDP in that credit agencies will start marking the US rating
down and means additional upward pressure on interest rates, (2) a 5% interest
rate may be too conservative and (3) having interest payments at 17% of the
federal budget when the budget deficit is a couple of hundred million dollars
is different from having interest payments at 17% of the federal budget when
the deficit is $1-2 trillion.
John
Williams named New York Fed head (medium):
What
I am reading today
Reasons to postpone
applying for social security (medium):
Rational markets and irrational
investors (medium):
Hack you brain to improve focus and
creativity (medium):
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