The Morning Call
5/17/18
The
Market
Technical
The Averages
(DJIA 24768, S&P 2722) recovered from Tuesday’s shellacking, though volume
declined and breadth was mixed. The
S&P bounced off its 100 day moving average (now support and supporting the
notion that Tuesday’s pin action was not a false flag; but the Dow remained
below its 100 day moving average [now resistance]). That challenge
still has to be mounted 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 was fell 8 ¼ %, ending
below its 100 day moving average (now resistance) and back below its 200 day
moving average, negating Tuesday’s upside break
It also finished in a short term downtrend.
The long
Treasury continued to decline, finishing below the lower boundary of its long
term uptrend for the second day; if it remains there through the close next Monday
(not Tuesday, as I previously stated), it will reset to a trading range. It continues below its 100 and 200 day moving
averages and within a short term downtrend.
And (must read):
The dollar was
up on big volume, 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 fell slightly,
ending below its 100 day moving average (now resistance), below its 200 day
moving average for a second day (now support; if it remains there through the
close on Friday, it will revert to resistance) and below the lower boundary a newly
reset short term trading range for a second day (if it remains there through the
close today, it will reset 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. This is pointing to higher interest rates and
a less accommodative Fed. Logically, it
would negatively impact gold
My assumption
would be that it 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. As you know, that is not my
narrative. So the Markets appear to be
nearing the point that I will proved right or wrong.
Fundamental
Headlines
Yesterday’s
economic stats were on the negative side: weekly mortgage and purchase
applications declined and April housing starts were abysmal. On the other hand, April industrial
production was better than expected while capacity utilization was worse.
Overseas
data continues to be a downer: April EU inflation was woefully short of its ECB
target and first quarter Japanese GDP declined.
A
couple of sideline issues that could come into play:
(1)
on the trade issue, Peter Navarro, Trump’s chief trade
consigliere, appears to have been sidelined.
I have always felt that this guy was a loose cannon and, if allowed to
prevail, would push the Donald passed the limits of his ‘art of the deal’
strategy---to the determent of all. I
look at this a good news for trade policy.
Inside the White House trade debate (medium and a must read):
(2)
on the potential impact of political turmoil on the
Market, Mueller has apparently decided to not indict Trump. That is not meant as an observation about
Trump’s guilt or innocence. It is meant
as an observation that indicting a president is generally not a Market friendly
action.
Investors
remained focused on economic forces (strength in the economy, commodity
inflation [i.e. oil] and direction of Fed policy) that are driving the pin
action in bonds and the dollar and debating the longer term implications of
those forces on corporate profitability and valuation.
Bottom
line: it’s confusing. The economic numbers are OK but not that
great; and certainly don’t show signs of getting better (as much as many would
want to otherwise believe). Meanwhile,
global growth is slowing markedly; and, despite a monumental effort by the
entire ruling class to ignore their grossly irresponsible fiscal policies,
servicing the monstrous debt with which it has saddled the American electorate will
be a burden on the productive asset of our economy. On the other hand, deregulation, potential
changes in the US trade regime and possibly significant cost reductions in healthcare
expenses are all pluses. My take is
that (1) economic growth will continue to be sluggish, at best and (2) that sooner
or later the Fed will bury a grossly overvalued Market.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
April
industrial production was up 0.7% versus consensus of up 0.6%; capacity
utilization was 78.0% versus expectations of 78.3%.
Weekly
jobless claims rose 11,000 versus estimates of up 4,000.
The
May Philadelphia Fed business outlook index came in at 34.4 versus forecasts of
21.0.
International
Other
Update
on big four economic indicators (medium):
Update
on the Chinese economy (medium):
Trade
war tensions between the US, China and the EU (medium):
Update
on auto loans (medium):
What
I am reading today
Chart crimes (medium):
More bad news on the pension front
(medium):
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