The Morning Call
4/12/18
The
Market
Technical
The indices
(DJIA 24189, S&P 2642) retreated yesterday. Volume was down (breaking the
pattern of high volume on down days, lighter volume on up days); breadth was negative. Both of the Averages closed within very short
term downtrends (having made a fourth lower high Tuesday) and below their 100
day moving averages (now resistance). They
both remain above its 200 day moving average, though yesterday’s pin action may
be a precursor to yet another challenge of this MA. 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 was down (unusual
for a down stock day---the second day of abnormal behavior), 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---reflecting the obvious fact
that volatility hasn’t gone away.
The long
Treasury was up, not surprising when the war drums are beating. It remained within its strong month long
bounce (very short term uptrend) off the lower boundary of its long term
uptrend. On the other hand, it continues to trade below
its 100 (though it appears that it is about to challenge that MA) and 200 day
moving averages and in a short term downtrend. So its pin action is roughly the reverse of
stocks---it is in a short term uptrend but longer term it is in a downtrend.
The dollar was down,
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 ¾ %, again
not unusual amidst threats of a potential major power confrontation. It closed above the lower boundary of its
short term uptrend and its 100 and 200 day moving averages.
Bottom line: near
term the direction of equity prices is in question. Yesterday’s pin action marked a fourth lower
high for both indices; so they are now getting squeezed between their very
short term downtrends and their 200 day moving averages---which they have
already unsuccessfully challenged four times.
History suggests
that a break out of this narrowing pennant like formation will set the course
of the Market in the direction of the break.
If it is to the upside then it would support the assumption that the
stock prices remain in a long term uptrend.
If to the downside then it would weaken the bull case and set up a
decline to the lower boundaries of the DJIA’s short term trading range and the
S&P’s short term uptrend. That said,
the Averages have plenty of support at lower levels.
The price
movements yesterday in TLT, UUP and GLD were influenced by geopolitical
risks---which can disappear as fast as they present themselves.
Fundamental
Headlines
Yesterday’s
economic stats were mixed: mortgage and purchase applications were down while
March CPI was slightly less than expected---offsetting Tuesday’s hotter than
anticipated PPI number.
In
addition, the Fed released the minutes of the March FOMC meeting, which, bottom
line, was just a tad hawkish or as one pundit put it ‘moving into non-accommodative
stance’. The highlights:
--the
economy is improving,
--the
Fed has confidence that it will achieve its 2% inflation target,
--the
tax cut will aid economic growth,
--however,
the deficit, to which the tax cuts contributed, is a negative,
--a
potential trade war would be a negative
The
minutes:
David
Stockman weighs in on Powell’s speech (which I linked to in Tuesday’s Morning Call). As usual, he presents the counterpoint to the
Fed’s narrative.
The
ongoing faceoff in Syria seemed to be dominate in investor minds, as Russia and
the US traded threats (we are bombing Syria, Russia is going to shoot down the
missiles, no you’re not because we have the superior technology). The big question is, which side wants to risk
its technology to be shown inferior and all that implies in future face-offs?
Russian
ships leave Syrian ports (short):
Bottom line: the
Fed continues its policy of normalization as the economy weakens and the yield
curve flattens (a flat/inverted yield curve has historically been a precursor
to recession). That, in my opinion, is
the overwhelming set of factors that will determine the Market direction.
Yes, a trade war
with China remains a possibility, though I have opined that Trump is going to talk
big, take whatever concessions he can extract and declare victory.
***overnight,
China ‘clarifies’ Xi’s speech---though appears to be some face saving language
in it (medium):
Yes, a shooting
war with Russia is also a possibility, though historically, the Russians have
talked a good game but been very conservative in their actions (Someone please
tell me how bombing Syria makes the US wealthier, happier, healthier, safer, and
stronger.)
***overnight,
Trump backs off his missile attack threat (short):
I
continue to like how my portfolios are structured---half equities, half cash.
News on Stocks in Our Portfolios
Automatic Data Processing (NASDAQ:ADP) declares $0.69/share quarterly dividend, 9.5% increase from
prior dividend of $0.63.
Revenue of $3.58B (+15.9%
Y/Y) beats by $210M.
Economics
This Week’s Data
US
Weekly
jobless claims fell 9,000 versus expectations of a 12,000 decline.
March
import prices were unchanged versus estimates of a 0.2% increase; export prices
were up 0.3%, in line.
International
February
EU industrial production was down 0.8% versus consensus of +0.2%.
Other
Some
history on the right of the president to resend spending (medium):
Quote
of the day (short):
What
I am reading today
Inflation
can hit stocks and bonds at the same time (medium):
Why rebalancing your
portfolio works (medium):
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