The Morning Call
6/20/18
The
Market
Technical
The Averages
(DJIA 24700, S&P 2762) did a repeat of Monday, trading down big early, then
spending the rest of the day trying to recover---which they did partially. Volume was up; breadth improved. The Dow finished right on its 100 day moving
average while the S&P remained above (now support). Both ended 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. Longer term, the assumption is that stocks
are moving higher.
The VIX was up 8 ½ %, but
still closed below its 100 and 200 day moving averages (now resistance). However, it finished above the upper boundary
of its short term downtrend for a second day; if it remains there through the
close today, it will reset to a trading range (which would the second time in
June)---suggesting that it is trying to find a bottom.
The long
Treasury was up ½ %, closing above its 100 day moving average and the lower boundary
of its long term uptrend but below its 200 day moving average (though it is
close to challenging it) and in a short term downtrend. The turmoil in trade continues to drive
investors to it as a safety trade.
Counterpoint:
The dollar was up
¼%, ending well above both moving averages and in a short term uptrend. It has also reestablished a very short term
uptrend. Like TLT, it seems to be
currently acting as a safety trade.
On the other
hand, GLD, which has long been a safety trade, can’t get out of its own way. Traditionally, it rises when interest rates
decline (it hasn’t) but does fall when the dollar is strong. So my confusion. Yesterday it was down
(again) ending below its 100 and 200 day moving averages and has reset its
short term trend to down.
Bottom line: trade
worries continue to plague the Markets. However,
to date no major technical damage has been done to stocks. Indeed, both indices remain in very short
term uptrends. So at this point, there
is no reason to be concerned about the Market direction. Of course, the tariff back and forth’s with China
don’t seem like they are going to end any time soon; so the pin action could
worsen. On the other hand, a couple of conciliatory
comments from either side could trigger a moonshot.
To the contrary,
bonds, the dollar and gold are being much more impacted. I am not sure why the difference; though the
temptation is to postulate that equity investors are tip toeing through the
tulips. But until they stop doing so,
the assumption remains that stock prices are going higher.
Emerging
market contagion goes global (medium):
Fundamental
Headlines
Yesterday’s
economic data was somewhat negative: month to date retail chain store sales
improved, May housing starts very much better than anticipated however,
building permits were much worse.
Trade
remains the foremost factor in virtually every global market. The prime
determining factor is Trump. I have made clear that I like what he is trying to
accomplish; and if he is successful, it will improve the long term secular
growth rate of the US economy. The unknowns
are (1) how long will it take our trading partners to recognize and accept [if
at all] that a new political/trade paradigm is being formed and (2) the
ultimate impact of Trump’s unpredictability and his inclination to exacerbate a
disagreement by his cheap sh*t comments.
I can’t believe
that I am actually linking to a NY Times article; but here is an op ed on Trump
trade policies (medium):
There are two
alternative scenarios (1) I am wrong, that what is occurring is not a giant global
chess game but the equivalent of my granddaughter’s Minnie Mouse Candy Land;
and that after a brief period of bluster, Trump will eke out a couple of
concessions from China (EU, NAFTA), declare victory and go on to find another
cause for which he can make dramatic tweets and insult the opponents. (2) I am
right, the Market agrees with me and is willing to look through the uncertainty.
Bottom line: I
have no idea how long this prize fight can go on. The good news is that all tariff action
already taken will take some time to go into effect; so there is time to reach
some an accommodative solution. The bad
news is that we are in chartered territory and we have no real idea how serious
Trump is or how painful the renegotiation process can become.
So far, at
least, equity investors have remained reasonably sanguine about the outcome. But if the process gets prolonged, then
earnings estimates are going to start coming down and that usually is not a
plus for stock prices. It sure makes
sense to me to have cash in one’s portfolio; and this is an excellent time to
be raising it while prices are still in an uptrend.
News on Stocks in Our Portfolios
Revenue
of $11.25B (+2.8% Y/Y) beats by $60M.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew faster than in the prior week.
Weekly
mortgage applications rose 5.1% while purchase applications were up 4.0%.
The
first quarter trade deficit was $124.1 billion versus estimates of $129.3
billion.
International
Other
Banking
troubles in the eurozone (medium):
What
I am reading today
Why boring municipal
bonds are exciting investors (medium):
Social security myths (medium):
More on unfunded pension liabilities
(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