The Morning Call
5/8/18
The
Market
Technical
The indices
(DJIA 24357, S&P 2672) were able to add to last Friday’s gains. Volume was down;
breadth improved. The S&P finished right
on the upper boundary of its very short term downtrend (the Dow is back above
it comparable trend line). Both closed
below their 100 day moving averages (now resistance) and 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 short term technical picture remains cloudy. Longer term, the assumption is that equity
prices will continue to rise.
The VIX was down
fractionally, and remains stuck between its 100 day moving average on the
upside and its 200 day moving average as well as the lower boundary of its
short term trading range on the downside.
Its recent weakness suggests higher stock prices.
The long
Treasury sold off slightly, leaving it hovering above 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
up another ¼ %, pushing it closer to the upper boundary of its newly reset
intermediate term trading range and above its 100 and 200 day moving averages
(now support).
GLD ended higher,
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
S&P remains within the ever narrowing pennant formation. The current gap
between upper and lower boundaries is roughly 50 points and, as I noted,
shrinking every day. This back and forth
could potentially go on for another two weeks before the upper and lower
boundaries converge---which would clearly suggest declining volatility, if that
were to occur. Whatever happens, every
technician in the universe is watching this show, waiting for a break one way
or the other; and that will likely add some force to any post-break directional
move. As an aside, the Dow’s chart is
not nearly as symmetrically precise as the S&P; but at the moment, no one
seems to care.
TLT is nearing
another challenge of the lower boundary of its long term uptrend, having lost
most of its recent upside momentum. A
break would point to higher long term interest rates. That explains the pin action in both the
dollar (which is soaring) and gold (which is challenging several support levels). However, as I have noted several times, the
recent price action in all the indicators suggests a good deal of investor
turmoil/confusion as multiple support/resistance levels are being challenged.
Price
instability/uncertainty remains for the moment.
The question is duration. Patience. I love my cash.
Fundamental
Headlines
Only
one economic data release yesterday: consumer credit grew much slower than
expected. To be fair, that was partially
offset by a strong upward revision to the February. However, combining both numbers would still result
in slower growth.
Overseas,
the stats out of Europe keep disappointing: May EU investor confidence and
March German industrial orders were below estimates.
***overnight,
the Chinese/US trade deficit grew primarily on stronger Chinese exports.
The
main headline of the day was the Donald’s announcement that he will make his decision
known on whether or not to stay in the Iran nuclear deal today a 2PM. While many of the implications are geopolitical,
Markets worry about war, sanctions, etc.
Bottom line: on the other
hand, barring a nuclear holocaust, what is going to impact Market valuation in
the long term are earnings, interest rates and long term economic growth.
Of course,
earnings just had one of the best quarters in recent history and investors weren’t
all that impressed.
Interest rates
show every sign of heading higher (see the chart of TLT); and week after week, I
record the economic stats that have been pointing at a slowdown in growth, the
Fed and other dreamweavers’ narrative notwithstanding.
And this is all
occurring in the midst of Fed tightening.
At the moment, it
is not certain that economic growth has peaked or that inflation will push well
passed 2%. But the evidence is
increasingly pointing in that direction.
And, in my opinion, that along with the unwinding of QE will be a lot
more important in the long term to investors than whether or not the Iran deal
holds.
If
I was fully invested, I would definitely lighten my equity exposure. I continue to appreciate my Price Discipline
which forces me to Sell Half when a stock meets its price objective.
***overnight,
Trump said that he would speak to Chinese Premier Xi this morning on trade
matters.
News on Stocks in Our Portfolios
FactSet Research Systems (NYSE:FDS) declares $0.64/share quarterly dividend, 14.3% increase from
prior dividend of $0.56.
Economics
This Week’s Data
US
March
consumer credit grew $11.6 billion versus expectations of up $15.6 billion;
however, the February number was revised from up $10.6 billion to up $13.6
billion.
International
March
German industrial production was up 1.0% versus forecasts of up 0.8%.
Other
Is
the US trapped in a debt spiral? (medium):
The
optimist’s view of quantitative tightening (medium):
Another
negative sign that global growth may be slowing (medium):
Is the economy
overheating? (short):
Fed chair tells emerging
markets that they are on their own (in other words, expect a continuing
tightening by the Fed) (medium):
What
I am reading today
Buying
and holding has its drawbacks (medium):
What
is North Korea’s strategy? (medium):
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