The Morning Call
6/19/18
The
Market
Technical
The Averages
(DJIA 24987, S&P 2773) were down big in early trading, then spent the rest
of the day trying to recover---which they did partially. Volume was about the level of last Thursday (I
am ignoring Friday’ quad witching); breadth was negative. Both finished above their 100 (though the Dow
is nearing its MA) and 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 3 %, but
still ended below its 100 and 200 day moving averages (now resistance). However, it is back above the upper boundary of
its short term downtrend (for the second time in the last five trading
days). If it remains there through the
close on Wednesday, it will reset to a trading range (which would the second
time in June)---suggesting that it is trying to find a bottom. Remember that at current price levels,
institutional investors are buying it for portfolio insurance.
The long
Treasury was down slightly, finishing above its 100 day moving average and the
lower boundary of its long term uptrend but below its 200 day moving average
and in a short term downtrend. While the
pin action last week indicated that the turmoil in trade is driving investors
to it as a safety trade, it is still facing the aforementioned resistance
levels.
The dollar was flat,
closing well above both moving averages and in a 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, was down ¼ % after being
hammered on Friday, ending below its 100 and 200 day moving averages and below
the lower boundary of its newly reset short term trading range. I have no explanation for this performance.
Bottom line: trade
worries appeared to be hanging around as the tit for tat tariff threat exchanges
between the US and China escalate.
However, they seemed contained yesterday in stocks, the long bond and
the dollar. GLD’s action continues to confuse me. I repeat my conclusion from last week: After a
week heavily ladened with important economic developments, much of them negative,
the price action in stocks suggest more upside.
Fundamental
Headlines
Only
one minor datapoint was released yesterday: the June housing index was pretty
bad.
Trade/tariffs
remain center stage in investor concerns, though there were no headlines
yesterday.
Just
the fear of a trade war is impacting trade (medium):
***overnight,
Trump is threatening tariffs on an additional $200 million of Chinese products.
Bottom line: the
outcome of the barrage of tariff threats will have a major impact on secular
economic growth or the lack thereof. Given
the current aggressive tariff rhetoric, prospects for higher growth do not look
all that great. And if I am correct
about Trump’s intent (dismantling the post WWII political/trade paradigm. See Saturday’s Closing Bell for more info),
this is likely to be a more complicated and painful process that just arguing
over relative tariff levels. We are not
there yet; but this is, in my opinion, a growing risk to global economic growth.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
June housing market index was reported at 68 versus forecasts of 78.
May housing
starts rose 4.9% versus expectations of up 2.5%; building permits fell 4.6%
versus estimates of being flat.
International
Other
Update
on the consumer credit cycle (medium):
We
won’t know the final lessons of QE until it’s over (medium):
China
curbs credit, economic growth slows (medium):
Hotel
occupancy rates down slightly (medium):
What
I am reading today
The 5% rule (short):
https://www.usatoday.com/story/money/columnist/2018/06/17/stocks-401-k-retirement-savings/694863002/
Spousal benefits of social security
(medium):
The number one rule in investing
(medium):
Commissions matter (medium):
Myths of stocks in the long run
(medium):
The latest on bitcoin (short):
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