The Morning Call
6/5/18
The
Market
Technical
The Averages
(DJIA 24813, S&P 2746) had another good day. Volume increased and breadth improved. The Dow finished right on its 100 day moving
average (now resistance). The S&P
ended above its 100 day moving average (now support). Both remained above their 200 day moving
averages (now support). The Dow is in a
short term trading range, the S&P in a short term uptrend.
The resistance
from the 100 day moving average may be giving way with the Dow in the midst of
a challenge and the S&P looking like it is going to break away from its
gravitational pull. Still until that
barrier can be overcome by both indices, stocks are at stall speed. Longer term, the assumption is that stocks
are moving higher.
The VIX fell 5 ¼ %,
finishing below its 100 and 200 day moving averages (now resistance) and below
the upper boundary of its short term downtrend---pointing to higher stock
prices.
The long
Treasury was down another 3/4 %, continuing what has become a rapid retreat off
the spike that ended last Monday. It
finished over its 100 day moving (now support), below its 200 day moving
average (now resistance). It remained
within its long term uptrend and short term downtrend.
The dollar fell fractionally
on huge volume, closing above its 100 and 200 day moving averages (now support)
and in short term uptrend. However, it
ended below the lower boundary of its very short term uptrend; if it remains
there through the close today, that trend will be voided.
GLD was down,
finishing below its 100 and 200 day moving average (now resistance) and in a
short term downtrend, though is it is nearing the upper boundary of that trend.
Bottom
line: yesterday may be a sign that the equity
investor ambivalence of the last three weeks is coming to an end. Follow through is still the key. On the other hand, it remains among
bond/dollar investors. Patience is key.
More
charts on yesterday’s pin action (medium):
WTI
drops below critical price support level (medium):
Fundamental
Headlines
One
datapoint released yesterday in what will be a very slow week for stats: April
factory orders were not only down but down more than expected.
There
was very little new in the news flow. Investors spent most of the day ruminating on
the big events last week:
(1)
trade:
China warns US (medium):
***overnight, Mexico counters
(medium):
(2)
Italy:
Why Italians are angry at the ECB
(medium):
Carmen Reinhart on the Italian
problem (medium):
***the inaugural speech by the new PM (medium
and a must read):
(3)
North Korea:
Un shuffles advisors ahead of summit (medium):
Bottom
line: we started the week with a lousy production number (factory orders);
recall that the primary driving force behind last week’s stellar economic
review was the production data. So this
stat should cause some investor hesitation.
Nope. In addition, the headlines
on the trade are not exactly reassuring.
And Italy seems to have faded as an issue; but if you read Carmen’s
analysis above, there is a reasonable argument that this problem has not gone
away.
So bad news
seems to have a very short shelf life.
If equity prices move higher, then it will only make them more
overvalued.
The
fallacy of the ‘buy and hold’ strategy (medium and a must read):
I
have linked to several articles in the past dealing with the increasing
likelihood of a global dollar funding crisis.
It now appears that it is starting to manifest itself in the emerging
market economies (medium and a must read):
News on Stocks in Our Portfolios
Microsoft
(NASDAQ:MSFT) acquires code-repository
platform GitHub for $7.5B in Microsoft stock.
Microsoft VP Nat Friedman
will assume the role of Github CEO while current Github leader Chris Wanstrath
becomes a Microsoft technical fellow.
The deal is expected to
close by the end of CY18. Upon closing, GitHub’s financials will be reported as
part of Microsoft’s Intelligent Cloud segment.
Microsoft expects the
acquisition to be accretive to non-GAAP operating income in FY20 and to have a
dilution of less than 1% to non-GAAP EPS in FY19 and FY20.
Economics
This Week’s Data
US
April
factory orders 0.8% versus an expected decline of 0.4%.
International
The
May Chinese composite PMI came in at 52.3, in line; the services PMI 53.9, also
in line.
The
May EU composite PMI was 54.1, in line but an 18 month low; April retail sales
were up 0.1% versus expectations of up 0.5%.
The
May Japanese composite PMI was reported at 51.7 versus estimates of 53.1.
The
May UK services PMI was 54.0 versus forecasts of 53.0.
Other
Priorities
on the path to monetary normalization (medium):
Current
odds of a recession (medium):
Why
the oil market fears Trump sanctions (medium):
Trump
asks Saudi Arabia to increase oil production by one million barrels per day
(medium):
What
I am reading today
How the social security
retirement benefit formula works (medium):
Reining in your spending habits
(medium):
Why teachers are in revolt (medium):
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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