The Morning Call
5/16/18
The
Market
Technical
The Averages
(DJIA 24706, S&P 2711) took it on the chin yesterday---not all that
surprising given they were well overbought. Breadth was lousy; volume was up. The S&P ended right on its 100 day
moving average (now support); but the Dow back off its 100 day moving average
(now resistance), having closed right on it on Monday. As you know, the S&P completed a
successful challenge of its 100 day moving average on Monday. Yesterday’s
retreat raises the question of a false flag.
In particular in light of the Dow’s performance. That said, at this point, the assumption is
that yesterday’s pin action was merely a normal price reaction to an overbought
condition.
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 up 12 ½ %, ending
below its 100 day moving average (now resistance) but back above its 200 day
moving average which had reverted to resistance on Monday. Like the S&P, it could be a false flag;
still if it remains there through close on Friday, it will revert back to support. It also finished in a short term downtrend
which had reset Monday from a trading range.
Again, Monday could have been a false flag.
The long
Treasury plunged 1 1/8 % on huge volume, finishing below the lower boundary of
its long term uptrend for the fourth time this year. If it remains there through the close next
Tuesday, it will reset to a trading range.
It continues below its 100 and 200 day moving averages and within a
short term downtrend.
Putting
rising rates in perspective (medium):
The
latest from Bill Gross (medium):
The dollar was
up ½ %, closing right on the upper boundary of its newly reset intermediate
term trading range and above its 100 and 200 day moving averages (now support).
GLD fell 1 ½ %, ending
below its 100 day moving average (now resistance), below its 200 day moving
average (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 (if it remains there through the close on Thursday, it will reset
to a downtrend).
Bottom line: clearly,
there was a lot going on yesterday, technically speaking. What seemed to be driving it all was the fall
in the long Treasury (suggesting higher inflation and a less accommodative
Fed), that pushed the dollar higher, gold and stocks lower. To be sure, one day’s pin action is almost
meaningless in the scheme of things; so I see little reason for concern about
Market direction.
That said, if
the current challenges by bonds, the dollar and gold to resistance/support
levels prove successful, that would suggest an economic scenario (rising
interest rates, rising inflation, a tightening Fed) that is somewhat at odds
with moderate growth with low inflation narrative being talked up in stock
circles. As always, follow through is
key.
Fundamental
Headlines
Yesterday’s
economic stats were up generally positive: the May housing market index, month
to date retail chain store sales and the May NY Fed manufacturing index were
upbeat. More mixed: March business
inventories were below estimates but sales were strong and April retail sales
were flat though ex autos they were below forecasts.
Overseas,
the data was mostly disappointing: first quarter German GDP, April Chinese
retail sales and fixed investment missed projections while April Chinese
industrial production was better than anticipated.
The
main political headline was North Korea canceling its meeting with South Korea which
probably added some jitters to the Market (short):
***overnight:
However,
equity investors seemed primarily focused was on the turmoil in the bond,
dollar and gold markets. I am not going
to repeat the above except for the---
Bottom line: 99%
of the time, one day’s pin action is meaningless in the long term scheme of
things.
Is
making money in the stock market becoming more difficult? (medium):
Results
of the latest Fund Managers’ survey (medium):
News on Stocks in Our Portfolios
Oracle
(NYSE:ORCL) will buy DataScience.com,
which creates a platform for centralized data science tools and infrastructure.
Terms not disclosed.
DataScience.com enterprise
clients include Amgen, Rio Tinto, and Sonos.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew faster than in the prior week.
March
business inventories were flat with February versus expectations of a 0.2%
increase; however, sales were up 0.5%.
The
May housing market index came in at 70 versus estimates of 69.
Weekly mortgage
applications fell 2.7% while purchase applications were down 2.0%
April
housing starts declined 3.6% versus forecasts of up slightly.
International
April
EU inflation was reported at 1.3% versus the ECB target of 2.0%.
First
quarter Japanese GDP fell 0.6%. Boys and
girls can you say ‘global synchronized growth’?
Other
Here
is another reason why the long term secular growth rate of the economy is and
will stay sub-par (medium and a must read):
Regulators
undoing Volcker rule; they never learn (medium):
Update
on big four economic indicators (medium):
More
pros and cons of Trump’s ZTE decision:
Pro
(medium):
Con
(medium):
Open
letter to Trump opposing tariffs (short):
China
and the US are still far apart on trade issues (medium):
What
I am reading today
The
difference just 0.5% can make (medium):
Quote of the day (short):
The perils of ‘recency’ bias
(medium):
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