The Morning Call
5/18/18
The
Market
Technical
The Averages
(DJIA 24713, S&P 2720) drifted lower yesterday on higher volume and mixed breadth. The S&P remained above its 100 day
moving average (now support); but the Dow remained below its 100 day moving
average (now resistance). That challenge has to be successfully made in order to give
clear sailing to the former all-time highs.
But that still seems likely.
Both remained
above their 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. Longer term, the
assumption is that equity prices will continue to rise.
The VIX inched higher, ending
below its 100 and 200 day moving averages (now resistance). It also finished in a short term downtrend.
The long
Treasury was off ½ %, finishing below the lower boundary of its long term
uptrend for the third day; if it remains there through the close next Monday,
it will reset to a trading range. It continues
below its 100 and 200 day moving averages and within a short term downtrend.
The dollar was
up again, closing above on the upper boundary of its newly reset intermediate
term trading range (if it remains there through the close next Monday, it will
reset to an uptrend). It also finished
above its 100 and 200 day moving averages (now support).
GLD was up
fractionally, ending below its 100 day moving average (now resistance), below
its 200 day moving average for a third day (now support; if it remains there
through the close today, it will revert to resistance) and below the lower boundary
a newly reset short term trading range for a third day, resetting to a
downtrend.
Bottom line: there
was more pin action around resistance/support levels yesterday. The long
Treasury continues its challenge of its long term uptrend and the dollar is now
challenging the upper boundary of its intermediate term trading range. Meanwhile, GLD reset its short term trend
from a trading range to a downtrend. This
is pointing to higher interest rates and a less accommodative Fed.
Given my
economic outlook, the assumption is that this would also have a negative effect
on stocks. Clearly that is not
happening---which means to me that equity investors are still operating under a
scenario of an improving but low inflationary growth economy and a generally
accommodative Fed---which is not my narrative.
So the Markets appear to be closer to the point that I will proved right
or wrong. I don’t mean tomorrow or next
week. This process could take
months.
But the point is
that bonds, the dollar and gold are all acting as they do late in an economic
cycle. The question is how long can that
go on? The optimists believe years. I think otherwise. Either way, the economy is in the Fifth Act;
it just whether it is at the beginning or near the end.
Finally, not to
argue against myself; one short term tell is the current pin action in small
cap stocks which have been steadily rising.
In my opinion, the Market is not going to fall meaningfully as long as
the small caps have momentum to the upside.
Fundamental
Headlines
Yesterday’s
economic data was mixed: weekly jobless claims rose more than expected, April
leading economic indicators were in line and the Philly Fed manufacturing index
was quite strong. Nothing overseas.
The
debate about the longer term meaning for the economy of rising interest rates
and the dollar continues to occupy center stage for investors. Most of my posts this week has focused on
these issues; so I won’t be repetitive except for my bottom line: the economy
is slowing and the Fed will likely be forced to continue to unwind QE whatever
the growth rate which will be a negative for the Markets.
Bottom
line: as you know, my views are not the consensus. Stocks are saying that I am wrong; and I have
to respect that. And I am open to being
wrong---it won’t be the first time. But
until the economy shows more signs of improvement and until it is clear that
the push to higher rates and a rising dollar aren’t going to be a burden to the
economy and the Market, I am sticking with my forecast.
Trump
ups the ante on trade with the EU (medium):
***overnight,
China sounded tough on trade but dropped an anti-dumping probe on US sorghum
(medium):
https://www.zerohedge.com/news/2018-05-18/china-denies-it-offered-slash-us-trade-deficit-200-billion
***overnight, US trade
representative said that the US was nowhere near a deal on NAFTA.
Liquidity
is the problem (medium and today’s must read):
The
latest on stock buybacks (medium):
News on Stocks in Our Portfolios
Emerson
(NYSE:EMR) has agreed to acquire Aventics
from Triton for a cash purchase price of €527M.
The company, which had
sales of $425M in 2017, is among the global leaders in smart pneumatics
technologies that power machine and factory automation applications.
Economics
This Week’s Data
US
The
April leading economic indicators were up 0.4%, in line.
International
April
Japanese CPI rose 0.6% versus estimates of up 0.7%.
Other
***overnight,
North Korea suspended talks with the South.
Are
we starting to see ‘crowding out’? (short):
Household
credit reaches another peak (medium):
How will
sanctions against Iran impact oil prices (medium):
What
I am reading today
Five steps to ease
money/health worried in retirement (medium):
The worse advice I ever heard
(medium):
How to start having more sex
(medium):
How much do you need for retirement?
(medium):
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