The Morning Call
6/28/18
The
Market
Technical
The Averages
(DJIA 24117, S&P 2699) had another rough day on higher volume. But breadth remained mixed---a bit unusual
for a big down day. The Dow finished
below its 100 day moving average (now resistance) and the S&P closed right
on its MA (now support). The DJIA ended below
its 200 day moving average (now support; if it remains there through the close on
Monday, it will revert to resistance) while the S&P remains above its MA (now
support). The Dow is in a short term
trading range, the S&P in a short term uptrend.
Stock buybacks continue
(short):
The VIX jumped 12 ½ %,
closing above its 100 day moving average (now resistance; if it remains there
through the close on Friday, it will revert to support), above its 200 day
moving average for a third day (now resistance; if it remains through the close
today, it will revert to support.
Remember it has see sawed above and below this MA over the last three weeks)
and within a short term trading range.
It looks like it bottomed in early June.
The long
Treasury was up 1%, ending above its 100 day moving average, the lower boundary
of its long term uptrend and now its 200 day moving average (now resistance; if
it remains there through the close on Monday, it will revert to support) and
remained in a short term downtrend. It is
clearly challenging the trading area bounded by the 100 DMA and the lower boundary
of its long term uptrend and the 200 DMA and the upper boundary of its short
term downtrend.
The dollar was up
another ½ %, finishing above the lower boundary of its very short term uptrend,
both moving averages and within a short term uptrend.
Gold was down another
½ %, ending below its 100 and 200 day moving averages and in a short term
downtrend.
Bottom line: the
pin action is getting even more sloppy.
Both indices are challenging support levels. To be sure, the Dow is way ahead of the
S&P in its down move; so before thinking about getting negative, the S&P
needs to catch down. Even if that
occurs, the S&P still needs to successfully challenge its short term
uptrend, before considering becoming a bear.
Bonds and the
dollar remain on the same page, if you view them as a safety trade. Gold, which is normally a safety trade, continues
to be just a lousy trade.
Yesterday
in charts (medium):
Fundamental
Headlines
The
economic releases yesterday were again negative: weekly mortgage and purchase
applications, May durable goods/ex transportation (primary indicator) and May
pending home sales were below forecasts while the May trade deficit was better
than anticipated (that should help Q2 GDP).
Trade
again dominated the headlines; and the operative word was confusion. After the overnight news that Trump was backing
off trade pressures against China, the administration ran out five advisors each
with a different perspective---not the least of which was Larry Kudlow, chief
economic advisor, who said that Trump had not changed his tough stance on China
trade. By the time this show was over, I
had no idea what these guys were thinking or doing---but maybe that is all part
of the art of the deal.
To
be clear, my position remains that (1) I agree with what Trump is professing to
want to accomplish---re-setting the global trade paradigm and (2) if he is
successful, it would a be plus for the economy, (3) but the reverse is also
true.
I also recognize
that his negotiating strategy is disconcerting to all parties including those
in the US; but if the premise is right (that the trading regime needs to
change), then using the negotiating strategies that created the current
inequities in the first place probably isn’t going to work. So Trump is going about it in another
way. I personally am prepared to let him
do it; if for no other reason that if he really screws up, congress and/or the electorate
will ultimately overrule him.
In the meantime,
as long as everyone thinks that the ‘art of the deal’ involves more bark than
bite, no one, including our trading partners, are going to take his bark
seriously. In other words, for his
strategy to work, there has to be a bite.
How hard that has to be in order to get attention is an unknown.
Bottom line: almost
nothing has happened yet; and even if all the threats that have been made
actually take place, the volume of trade involved is extremely small. In addition, we don’t have an inkling of how
these negotiations are going to turn out. So
I repeat my earlier observation---I don’t see trade worries changing the
direction of the Market. Volatility yes;
a bear market no
However,
if you want something to worry about: the level of consumer, corporate and
government debt continues to grow, the emerging markets, including China, are
starting to have dollar funding problems for their own stratospheric dollar
denominated debt levels, the Fed is unwinding QE, the economy is not nearly as
strong (in my opinion) as dreamweavers think and the yield curve is flattening---all
of which seem lost on the media and those hyperventilating over trade.
Asset prices are
divorced from economic reality (medium):
News on Stocks in Our Portfolios
Revenue
of $871.1M (+9.1% Y/Y) beats by $2.14M.
Revenue
of $10.31B (+16.2% Y/Y) beats by $270M.
Economics
This Week’s Data
US
May
pending home sales fell 0.5% versus estimates of +0.6%.
Weekly
jobless claims rose 9,000 versus forecasts of +2,000.
The
third estimate of first quarter GDP was showed growth of 2.0% versus consensus
of up 2.2%; after tax profits increased 2.7% versus 2017 4Q’s reading of up
0.1%.
International
Other
The
Bank of Japan now owns 42% of all government bonds and is a top tem shareholder
in 40% of Japanese companies. Tell me
this won’t end badly. (medium and a must
read):
What
I am reading today
How
to retire without a nest egg (medium):
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
No comments:
Post a Comment