The Morning Call
6/29/18
We leave this morning for a fourth
of July break and will return July 9th. If anything untoward occurs, I will
blog. Have a great holiday.
The
Market
Technical
The Averages
(DJIA 24216, S&P 2716) bounced on lower volume yesterday. Breadth improved. The Dow finished below its 100 day moving
average (now resistance) and the S&P closed above its MA (now
support). The DJIA ended below its 200
day moving average for a second day (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.
The VIX fell 5 %, closing
back below its 100 day moving average, negating Wednesday’s break, above its
200 day moving average for a fourth day, reverting to support. (it continues to see saw above and below this
MA) and within a short term trading range.
It looks like it bottomed in early June.
The long
Treasury was up slightly, ending above its 100 day moving average, the lower
boundary of its long term uptrend and its 200 day moving average for a second
day (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 unchanged,
finishing above both moving averages and within a short term and very short
term uptrend.
Gold was down another
¼ %, ending below its 100 and 200 day moving averages and in a short term
downtrend.
Bottom line: the
pin action improved a bit yesterday, though the DJIA’s technical position continues
to deteriorate and both of the indices’ 100 day moving averages are rolling
over. In addition, the dollar and the
long bond continue to trade like a safe haven---confirming somewhat the DJIA’s
performance. On the other hand, the S&P remains above both moving averages
and within uptrends across all timeframes.
As long as the S&P remains
firmly in an uptrend, the assumption has to be that momentum remains to the
upside.
Yesterday
in the charts (medium):
Fundamental
Headlines
Yesterday’s
economic data reports continued this week’s poor performance: weekly jobless
claims rose more than expected plus (the third revised) first quarter GDP
growth and the June Kansas City Fed manufacturing index were disappointing. The one positive stat was that first quarter
corporate profits improved from 4Q2017.
***overnight,
the ECB, as part of its bond buying program, is considering investing in longer
dated bonds which will (1) flatten the EU bond yield curve and (2) extend the
life of any unwinding of its QE.
For
once in the last week, trade was off front page. Indeed, it was a pretty slow news day. Perhaps the biggest headline came after the
Market close. The Fed released the
results of stage two of its stress test which addresses the banks’
ability/freedom to pay out capital to shareholders. Not surprisingly, Deutschebank’s US
subsidiary didn’t fare well. But in
addition, the Fed limited the proposed payouts of Goldman and Morgan Stanley,
though they can still make some payout.
Following the release, virtually every bank announced a dividend
increase and stock buyback. The importance here is that US banks are in much
better shape to sustain negative events than they were in 2008.
Bottom line: while
trade dominated the news cycle this week, the economic releases were quite
negative including the primary indicators---which support my thesis that the
economy isn’t nearly as strong as many contend.
As you know, I believe that second quarter numbers will be an
improvement from the first quarter, probably stimulated by the tax
increases. But there has been no
sustained consistency in the numbers.
Meaning, if I am correct, it will be necessitate not only the lowering
of consensus EPS growth estimates but also P/E assumptions. (must read)
And it will only
exacerbate the Market’s major problems from the rising level of consumer,
corporate and government debt, the dollar funding problems of the emerging
markets, including China and the Fed unwinding QE
News on Stocks in Our Portfolios
Revenue
of $9.8B (+12.9% Y/Y) beats by $390M.
Economics
This Week’s Data
The
June Kansas City Fed manufacturing index was reported at 28 versus May’s
reading of 29.
May
personal income rose 0.4%, in line; however, personal spending was up 0.2%
versus expectations of up 0.4%.
US
International
Other
We
are probably near peak housing (medium):
Money
supply growth slows (medium):
What
I am reading today
The next bear market
could speak a retirement crisis (medium):
Iran reopens nuclear facility
(medium): https://www.zerohedge.com/news/2018-06-28/iranian-president-reopens-nuclear-plant-we-will-bring-us-its-knees
Italy
refuses to sign EU summit statement (medium):
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