The Morning Call
5/11/18
The
Market
Technical
The indices
(DJIA 24739, S&P 2737) had another good day. Breadth continued to improve
but volume was down. The most important
thing was that the S&P confirmed its successful challenge of the four month
long very short term downtrend and with a continuation of energy that I had anticipated. It also ended above its 100 day moving
average (now resistance; if it remains there through the close on Monday, it
will revert to support).
The Dow remained
below its 100 day moving averages (now resistance). Both finished 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. 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; but that process has already begun.
Longer term, the assumption is
that equity prices will continue to rise.
The VIX was down, ending
below its 100 day moving average as well as its 200 day moving average for the
second day (now support; but if it remains there through the close on Monday,
it will revert to resistance). It also
finished below the lower boundary of its short term trading range; if it
remains there through the close on Monday, it will reset to a downtrend. Clearly, the VIX is trading in line with a
surging Market.
The long
Treasury was up, bouncing off the lower boundary to its long term uptrend for the
third time. Multiple challenges are usually
needed to break long term trends. So, I don’t
think that this unsuccessful attempt means that momentum is shifting to the
upside. On the other hand, I don’t mean
to imply that a successful challenge will occur. TLT is still facing serious overhead
resistance from its 100 and 200 day moving averages and the upper boundary of a
short term downtrend.
The dollar declined,
but remained close to the upper boundary of its newly reset intermediate term
trading range and above its 100 and 200 day moving averages (now support).
GLD rallied ½ %,
finishing above its 200 day moving average (now support) and in a newly reset
short term trading range. In addition,
it is approaching its 100 day moving average (now resistance).
Bottom line: the
four and a half month long pennant formation has been voided to the
upside. Historically, that suggests
further momentum higher. Adding support
to that notion, the S&P is now challenging its 100 day moving average; and
it seems likely that this resistance level will also be surmounted. I am now looking at its former highs (~26656/2871)
as the next stopping point.
The other
indicators that I follow aren’t breaking resistance (support) levels. TLT backed off the lower boundary of its long
term uptrend, the dollar felled back from the upper boundary of its
intermediate term trading range.
That continues
to point to a narrative that includes an improving economy but with little
inflationary pressure. Goldilocks.
Fundamental
Headlines
Yesterday’s
economic data was upbeat: weekly jobless claims were better than expected. April CPI was lower than estimates; and overseas,
the April Chinese inflation numbers were equally encouraging.
Certainly,
the inflation stats are a positive especially when they are occurring among the
dominant global economies. It is good
news for consumers; it is good news for the Fed, in that it lessens the pressure
to tighten; and it is good news for investors as it confirms the growth without
inflation narrative that seems to have taken over Market psychology.
On
a near term basis I don’t really have a problem with that narrative except as a
matter of degree, i.e. I don’t believe that the economy is growing at the rate
currently being assumed by investors. As
you know, I am not nor have not been saying that the economy isn’t
growing. It is just not growing at the
rate most want it to. I have spent the
last year plus recording the almost continuous shortfall in the data versus
what has been expected. If you look at
Street expectations on a given date, the subsequent numbers have not met
estimates. And this has happened time
and time again.
Just as
important, I don’t see any reason why that will change based primarily on the
notion that the national debt and current deficit are so onerous that the
servicing costs will consume any funds that might otherwise be used to finance economic
growth. At some point, either the
dreamweavers are going to have to be right or get real. I just don’t know when that happens.
The other
problem is the impact that disposition of $4 trillion sitting on the Fed’s
balance will have on the Markets---notice I said Markets, not the economy. As you know, my operating monetary policy
thesis for the last five years has been that as the Fed unwinds QE, it will
unwind the mispricing and misallocation of assets that were primary results of
QE (not economic growth).
An update on the
NY Fed’s inflation gauge (medium):
Bottom line: the
economy is not progressing and will not progress at the rate the Street is
currently forecasting. Inflation may be
dormant; but there is a reason for that---no economic pressure. If the Fed continues to unwind QE at the
current pace, it is going to cause heartburn first in the fixed income Market
that will then spread to other asset classes.
If it slows the unwind of QE, it will likely be because it wakes up to
the fact that its Keynesian model doesn’t work and the economy really isn’t as
strong as it thinks.
This
an example of the kind of fuzzy, self-aggrandizing logic from a republican
congressman that is typical of DC. In
it, he touts the fiscal responsibility of the GOP, not mentioning the $1.2
trillion deficit spending bill that he and his colleagues recently enacted and
lavishes praise on the same group of clowns for proposing the rescission of $15
billion in spending which in mathematical terms is a wart on a goat’s ass in dealing
with the debt and deficit problems.
Unicorns exist
only when money is free (medium):
News on Stocks in Our Portfolios
C.H. Robinson Worldwide (NASDAQ:CHRW) declares $0.46/share quarterly dividend, in line with
previous.
Economics
This Week’s Data
US
April
US import prices rose 0.3% versus estimates of +0.5%; export prices increased
0.6% versus forecasts of +0.3%. The
strong dollar undoubtedly influenced these numbers.
International
Other
US
business cycle chart book (medium):
The
US is not at full employment (medium):
What
I am reading today
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