The Morning Call
5/15/18
The
Market
Technical
The Averages
(DJIA 24899, S&P 2730) got off to a great start yesterday, then gradually
gave much of it back throughout the day. Breadth continued to improve; volume was
up. The S&P ended above its 100 day
moving average for a third day, reverting to support; the Dow finished right on
its 100 day moving average. 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.
With the S&P
moving above their 100 day moving averages, the last piece of resistance is the
Dow’s 100 day moving average; though it seems highly likely that challenge will
be successful. That done, the short term
technical outlook will be positive with an objective of their former all-time
highs. Longer term, the assumption is
that equity prices will continue to rise.
The VIX was up 2 ¼ %, but
remained below its 100 day moving average (now resistance) as well as its 200
day moving average for the fourth day, reverting to resistance. It also finished below the lower boundary of
its short term trading range for the third day, resetting to a downtrend.
Clearly, the VIX is trading in line with a surging Market.
The long
Treasury fell ½ %, falling back from a minor resistance level. It seems that the weight of its 100 and 200
day moving averages and its short term downtrend are impacting it. It now appears that another challenge of its long
term uptrend is in the offing.
The three month
Treasury now yields more than stocks (short):
The dollar was
up fractionally, finishing close to the upper boundary of its newly reset
intermediate term trading range and above its 100 and 200 day moving averages
(now support).
Plus
rising dollar = tighter monetary policy (medium):
GLD continued to
decline, falling back from its 100 day moving average (now resistance) but above
its 200 day moving average (now support) and in a newly reset short term
trading range.
Bottom line:
once the Averages clear their 100 day moving averages (and we are now half way
there) the next visible resistance level
is their former all-time highs. I see no
reason why those levels won’t be tested.
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
No economic data
releases yesterday, either here or abroad.
The news item of the day was
Trump seemingly backing off the sanctions imposed on Chinese electronics firm
(ZTE Electronics). The pundits spent
most of the day trying to figure out Trump’s motive. Here is one from a (progressive/liberal)
skeptic (medium):
Wilbur Ross on the subject (short):
The other subject of debate was Trump’s new drug plan.
The cons of Trump’s
drug plan (medium):
The pros of Trump’s drug
plan (medium):
Bottom line: free
trade is good for the economy and ultimately good for the Markets. Trump may not be going at it in a
conventional manner; but nothing he does is conventional. If he can achieve a freer and fairer trade
regime, that is a plus.
Rationalizing
our healthcare system to make it less expensive, absent bureaucratic
oppression, is also good for the economy.
To be sure, virtually every piece
of legislation foisted on the American electorate attempting to cut healthcare
costs has ended up doing just the opposite.
So it is way too soon to assume Trump’s effort will turn out any
different. But if he is successful, it
would be a positive.
The question I try to answer
every day is whether deregulation and the potential benefits from a revised
trade regime and now perhaps improvement in the administration of our
healthcare system are enough to offset the ill effects of an outsized national
debt/deficit and an irresponsible Fed? The
answer is that there is almost surely some, but I don’t know by how much. In my opinion, it is the biggest question
with regards to the long term secular growth rate of the economy.
Thoughts on valuation (medium):
More
(medium):
And
still more (short):
Thoughts
on bank debt (short):
News on Stocks in Our Portfolios
Revenue of $24.95B (+4.4% Y/Y) misses by $270M.
Economics
This Week’s Data
US
April
retail sales rose 0.3%, in line; ex autos, they were up 0.3% versus expectations
of +0.5%.
The
May NY Fed manufacturing index came in at 20.1 versus estimates of 15.5.
International
First
quarter German GDP was up 0.3% versus forecasts of up 0.4%.
April
Chinese industrial production rose 7.0% versus consensus of up 6.4%; retail
sales were +9.4% versus projections of 10.0%; fixed investment was up 7.0%
versus expectations of up 7.4%.
Other
Cryptocurrencies
and central banks (medium):
Cleveland Fed head says
may be going to 3% soon (short):
St Louis Fed had worried
about the yield curve inverting (medium):
China makes hay on Trump’s
Iran action (medium):
What
I am reading today
Quote
of the day (short):
Thoughts
from a professional investor (medium):
Following
five healthy life style habits could add a decade to your life (medium):
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