The Morning Call
5/31/18
The
Market
Technical
The Averages
(DJIA 24667, S&P 2742) recovered most of Tuesday’s loses. Volume declined and breadth improved. The Dow finished below its 100 day moving
average for the third day, reverting to resistance. The S&P ended back above its 100 day
moving average, voiding Tuesday’s break.
Both remained above their 200 day moving averages (now support). The Dow is in a short term trading range, the
S&P in a short term uptrend.
The resistance
from the 100 day moving average is having, at least, a short term impact on
upside momentum. Until that barrier can
be overcome by both indices, stocks are at stall speed. Longer term, the assumption is that stocks
are moving higher.
The VIX declined 12%, but
still finished above its 200 day moving average for the second day (now
resistance; if it remains there through the close on Friday, it will revert to
support), above the upper boundary of its short term downtrend for a second day
(if it remains there through the close today, it will reset to a trading range). However, it did bounce down from its 100 day moving
average.
The long
Treasury was down ½ % on high volume, ending over its 100 day moving average
for the second day (now resistance; if it remains there through the close today,
it will revert to support), but back below its 200 day moving average, voiding
Tuesday’s break (now resistance). It
remained within its long term uptrend and short term downtrend.
The dollar fell ¾
%, but still closed in both short term and very short term uptrends as well as above
its 100 and 200 day moving averages (now support).
GLD was up
slightly, but not enough to impact major trends: ending below its 100 and 200
day moving average (now resistance) and in a short term downtrend.
Bottom line: clearly,
the ‘buy the dips’ crowd still has some muscle, though they need to push the Dow above its 100 day moving
average to confirm any return to short term upside momentum. That said, I think confusion/uncertainty best
describes the pin action since mid-May.
Plus, notwithstanding yesterday’s performance in stocks, the action in all
the indices that I follow suggests to me that the underlying Market narrative
is becoming more muddled.
More
on the leverage in the Market (medium):
Fundamental
Headlines
Yesterday’s
economic stats were tilted to the downside: weekly mortgage and purchase applications
fell, the April ADP private payrolls report was disappointing while the second
estimate of first quarter GDP was in line and the April trade deficit was less
than anticipated. Nothing earth shaking
here.
The Fed released
its latest Beige Book which read much like the April edition: economic activity
rising moderately, prices rising moderately and concern about trade. The interesting part is the discussion of the
tight labor market and how companies are dealing with it (see the below link). Bottom line: nothing here to alter
expectations on Fed policy.
Overseas, the
data was better (for a change). April
German unemployment fell slightly and April Japanese retail sales were up
strongly.
In
addition, the political turmoil in Italy subsided, at least, for a day. As I noted yesterday, there is no way of
knowing whether this is just a lot of smoke or if there is really a potential/economic
disaster in the making; and we won’t know for some time. Meanwhile, our Markets will likely still be
subject to the volatile politics of that country.
***overnight
developments in Italy (medium):
Will
turmoil in Italy derail Fed plans? (medium):
Bottom
line: equities are overvalued as a part of the whole thesis of the mispricing
and misallocation of assets. In my
opinion, that condition won’t be corrected by a recession; although currently
the Street economic forecasts are overly optimistic. That condition could be corrected by the
unwind of QE; but that assumes that the Fed will continue tightening even when
the bond market decides it doesn’t like that.
Or that condition could be corrected following some exogenous event that
wakes up investors to economic/valuation reality. I have no idea what triggers the correction.
***overnight,
tariffs on EU steel and aluminum will likely go into effect today (medium):
‘Noise’
in the investment process (medium and a good read):
News on Stocks in Our Portfolios
Revenue of $700M (+15.1% Y/Y) beats by $17.32M.
Economics
This Week’s Data
US
Weekly
jobless claims fell 13,000 versus expectations of down 10,000.
April
personal income rose 0.3%, in line; personal spending was up 0.6% versus
estimates of +0.4%.
International
Other
Truck
tonnage is rising (short):
Entitlements
and the US deficit/debt (medium):
Here
is a rundown of legislation that partially rolls back portions of Dodd
Frank. This is in distinction from
measures that the Fed is considering that would allow an expansion of banks’
prop trading activity (medium):
What
I am reading today
How much do you need to
save for retirement? (medium):
Fossilized skull of half mammal,
half reptile may re write history (medium):
The ongoing battle over the US’s
Iranian sanctions (medium):
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
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