The Morning Call
5/10/18
The
Market
Technical
The indices
(DJIA 24542, S&P 2697) soared yesterday. Volume was up; breadth
improved. The most important thing was
that the S&P made a clear break above the upper boundary of its very short
term downtrend and with the kind of energy that I had anticipated. If it remains there through the close today,
the challenge will be confirmed.
Both of the
Averages closed below their 100 day moving averages (now resistance); however,
the S&P is just below this resistance level and appears ready to make a
challenge. They also ended above their
200 day moving averages (now support).
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. The clouds in the short term technical picture are
clearly breaking and will dissipate completely if the S&P remains near
current levels today. Both still need to
push through their 100 day moving average before we can focus on the former all-time
highs as the next resistance level. Longer term, the assumption is that equity
prices will continue to rise.
As you might expect, the
VIX was hammered (down 9%), finishing below its 100 day moving average (now
resistance) as well as its 200 day moving average (now support; but if it
remains there through the close on Monday, it will revert to resistance). In addition, it closed right on the lower boundary
of its short term trading range.
The long
Treasury sold off ½ %, leaving it right on the lower boundary to its long term
uptrend and facing serious overhead resistance from its 100 and 200 day moving
averages and the upper boundary of a short term downtrend.
The dollar was
unchanged, keeping it within pennies of the upper boundary of its newly reset
intermediate term trading range and holding above its 100 and 200 day moving
averages (now support).
GLD ended lower,
finishing above its 200 day moving average (now support) and in a newly reset
short term trading range. However, it
remained below its 100 day moving average (now resistance).
Bottom line: the
long awaited S&P break out of the four and a half month pennant formation has
apparently occurred. I still need for
that challenge to be confirmed today before making a clear call. Given the usual pin action following such a
long developing formation, I would expect the confirmation and that the S&P
soon reset its 100 day moving average from resistance to support.
TLT continues to
move nearer another challenge of the lower boundary of its long term
uptrend. A break would point to higher
long term interest rates. At the moment,
the strong pin action in the dollar appears to be driving TLT down. On the other hand, while gold has been
trading near several key support levels, the strong dollar has not pushed it to
any challenges. That is not usual.
Taking all these
indicators as a whole, it would appear that the Market is betting on an
improving economy but with little inflationary pressure which would suggest higher
stock prices accompanied by gradually higher interest rates, stronger dollar
and lower gold prices.
Fundamental
Headlines
Yesterday’s
economic data releases were mixed: weekly mortgage and purchase applications
declined; the April headline PPI number was lower than expected but ex food and
energy, it was in line; and March wholesale inventories were below estimates,
but were in line with sales.
Overseas,
April UK retail sales were disappointing.
***overnight,
the Bank of England met, left rates and QE unchanged and lowered its economic
growth forecast.
Aside
from investor focus on the chart of the S&P, the other news of the day
centered on fall out from Trump’s Iran decision and the never ending
Mueller/Trump/Cohen/Russia mess.
I
have to add this reaction from Germany on the Iran deal---yeah, Angela and not
a moment too soon. (medium):
Bottom
line: I hate even having to deal with our ruling class mud wrestling. Normally, it is like swatting at a gnat. So I do all I can to avoid it except to say, in
this case, that I hope this is not foreplay in anticipation of impeachment. I have lived through two impeachment
processes and neither of those were Market friendly. That said, investors either don’t care or don’t
believe there is much chance of impeachment.
What
Markets seem to be doing is rebuilding enthusiasm for a goldilocks
economy---decent growth, low inflation and a Market friendly Fed. As you know, I take exception to that
view. I am not going to be repetitive
but I leave with the thoughts from John Mauldin (medium and a must read):
News on Stocks in Our Portfolios
Expeditors (NASDAQ:EXPD) declares $0.45/share semi-annual dividend, 7.1% increase from
prior dividend of $0.42.
Qualcomm’s
(NASDAQ:QCOM) board approves a new $10B stock
repurchase program, effective immediately.
The program replaces the $15B program announced in March 2015, which had
$1.2B left.
Economics
This Week’s Data
US
March wholesale inventories were up 0.3%
versus forecasts of up 0.5%; sales were also up 0.3%.
Weekly jobless claims were flat
versus expectations of a 9,000 claim increase.
April CPI was up 0.2% versus
estimates of up 0.3%; ex food and energy, it was up 0.1% versus consensus of up
0.2%.
International
April
UK retail sales fell 3.1% year over year.
April
Chinese CPI was up 0.2% versus projections of up 0.3%; PPI was down 0.2%, in
line.
Other
The
unemployment rate and the stock market (medium):
A
recession soon? (medium):
The
state of consumer debt (medium):
Another
step away from the dollar’s reserve currency status (medium and a must read):
What
I am reading today
Rooftop solar energy is expensive
and inefficient (short):
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