The Morning Call
5/7/18
The
Market
Technical
The
S&P’s chart remains amazingly symmetric, touching both the lower and upper
boundaries of the narrowing pennant formation last week but remaining within
the pattern. The technical conclusion is
that a break in either direction will have significant follow through.
TLT
spent the entire week trying to generate sufficient momentum to continue the
bounce of the lower boundary of its long term uptrend; but all it could do was
trade in a tight range. More importantly,
if there was growing support for lower rates, it should have been able to close
that obvious overhead price gap that occurred two weeks ago. Clearly, it has been unable to do so, thus
far. The longer that lasts, the stronger
the implications for further downside in TLT prices (rising rates).
The
dollar continues its relentless drive upwards.
While it blew through its 100 and 200 day moving averages without so
much as a pause, it still faces major resistance from the upper boundary of a
recently reset intermediate term. Given
its inverse correlation with TLT, a test of that upper boundary should coordinate
roughly with TLT’s challenge of the lower boundary of its long term uptrend.
In
the last two weeks, GLD has responded basically as it has conventionally: a
falling TLT (higher rates) and a stronger dollar generally means lower gold
prices. And like TLT and UUP it is near technical
levels (lower boundary of its short term trading range and its 200 day moving
average) that if broken would signal a change in regime.
The
VIX traded with a huge price range on Friday, challenging its 200 day moving
average (now support) and the lower boundary of its short term trading range
but failing. It remained below its 100 day moving average (now
resistance). Its bias is to the
downside, suggesting more upside for stocks.
Fundamental
Headlines
Last
week’s economic data was mixed but the primary indicators were negative. Score:
in the last 134 weeks, forty-five were positive, sixty-three negative and
twenty-six neutral. That supports my
forecast of sluggish US economic growth despite the removal of regulatory obstacles. Not helping is (1) what seems to be turning
into a slowdown in ‘global synchronized growth’, (2) fiscal policy that is
irresponsible in its extreme [raising the budget deficit at a point of peak
economic activity] and (3) a Fed that has grown its balance sheet to roughly $4
trillion---which will either run off or be sold. Either way it makes financing a huge budget deficit
all the more difficult.
This
is not environment conducive to rising stock prices, in particular, if prices
are already at record highs.
The
dividend yield scare (short):
News on Stocks in Our Portfolios
Revenue of $3.05B (+22.0%
Y/Y) beats by $150M.
Revenue of $3.7B (+41.8% Y/Y) beats by $190M.
Economics
This Week’s Data
US
International
May
EU investor confidence was 19.2 versus the April reading of 19.6.
March
German industrial orders fell 0.9% versus expectations of a rise of 0.5%.
Other
Update on big four economic
indicators (medium):
What
I am reading today
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