The Morning Call
6/12/18
The
Market
Technical
The Averages
(DJIA 25322, S&P 2782) inched higher yesterday. Volume declined; breadth was mixed but is
moving into overbought territory. Both finished
above their 100 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 rose 1 ¼ %, but
still ended below its 100 and 200 day moving averages (now resistance) and below
the upper boundary of its short term downtrend.
This continues to point to higher stock prices; though it is at a level
at which institutions start buying it as portfolio insurance.
The long
Treasury was off slightly. Intraday, it
challenged its 100 day moving average (now support) but failed in that
effort. It also remained above the lower
boundary of its long term uptrend, though it is drifting closer. A break of the long term uptrend would end a
twenty year plus bull market and indicate that higher interest rates are in our
future.
The dollar was
up fractionally. Though it has voided
its very short term uptrend, it still has plenty of upside momentum, being well
above both moving averages and it is in a short term uptrend.
GLD was up
slightly but remained below its 100 and 200 day moving averages. However, it closed above the upper boundary
of its short term downtrend for a second day by virtue of trading flat for the
last three weeks as the downtrend continued.
If it remains there through the close today, it will reset to a trading
range.
Bottom
line: the indices appear headed for
their all-time highs (26656/2874) which I am assuming that they will at least
challenge. Both TLT and UUP are pointing
at an improving economy and higher interest rates. GLD isn’t really telling us much.
Fundamental
Headlines
No
US economic releases yesterday, though the stream of disappointing data from
overseas continued: April UK industrial production was below expectations and its
trade deficit was above.
Speaking
of disappointments, the G7 meeting ended with the US not signing the final
communique and Trump poor mouthing Canada’s PM.
Foolish me, I was optimistic. I
don’t think that means that a trade war is inevitable but the odds seem to have
increased. My bottom line hasn’t
changed, such an occurrence would not be good for economic growth of either the
US or the G7. In addition, I think that
the ‘art of the deal’ negotiating style is wearing a bit thin.
EU will have retaliatory tariffs
ready by July 1 (medium):
Overnight,
the Singapore (I know I said Shanghai last week) summit wrapped up and the
headlines are positive. However, as I have
noted many times, the North Koreans have a record of making agreements in
exchange for economic help, then breaking them as soon as it is
convenient. So it is way too soon to be
getting jiggy with this deal.
The next big
items this week are the meetings of the Fed, the ECB and the Bank of
Japan. After striking out on the G7
outcome, I retreat to the forecasting sidelines except to repeat the current
Street expectations: (1) the Fed will raise the Fed Funds rate but the
important thing will be the subsequent narrative concerning policy direction, (2)
the ECB says it will discuss ending QE; ‘discuss’ being the operative
word. With the EU economy faltering, I don’t
see any action, (3) the BOJ also says that it will be considering some
tightening moves, but that should be taken with one tenth of a grain of salt.
Bottom line: the
score so far in this news laden week is one positive (potentially; but the odds
are heavily weighed to this being a nothing burger) and one negative (trade
wars are not good for our economic health).
Now we face three central bank meetings in which the outcomes seem set
but the subsequent narratives are important.
Bear in mind that all these guys are worried about the negative
consequences of unwinding the vast QE experiment, so expect them to be dovish. Whatever occurs, stocks are still overvalued
and the central banks still have to unwind the massive mispricing and
misallocation of assets.
Myths
of stocks for the long run (medium):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
May small business optimism index was 107.8 versus estimates of 105.2.
May CPI rose 0.2%, in
line; ex food and energy, it was up 0.2%, also in line.
Month
to date retail chain store sales grew slightly faster than in the prior week.
International
June
German investor sentiment came in at -16.4 versus May’s reading of -8.2.
Other
Debt
clock ticking (medium):
Is
the US due for a recession? (medium):
Here
are some background stats on our trade deficit (medium):
Turmoil
in the oil market (medium):
Saudi
oil production rises in June (medium):
What
I am reading today
Court
strikes down ‘fiduciary rule’ (medium):
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