The Morning Call
6/6/18
The
Market
Technical
The Averages
(DJIA 24799, S&P 2748) had a mixed day (Dow down, S&P up). Volume declined; breadth was directionless. The Dow again 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 2 ½ %,
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 finally rallied, finishing 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,
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 for a second day, voiding
that trend.
GLD actually had
an up day, but still ended 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: the Averages made a weak attempt
to try to break free of the 100 day moving average. More follow through is needed to accomplish
that. I remain confused by the messages
being sent by the bond, dollar and gold markets.
Fundamental
Headlines
Yesterday’s
economic releases were upbeat: the May services PMI and the ISM
nonmanufacturing indices were both better than expected though month to date
retail chain store sales growth slowed. However,
the overseas data was poor.
***overnight, EU central bankers
confirmed that the ECB ‘is ready to consider exiting its massive bond buying
program’. ‘Ready to consider’ being the
operative phrase.
Like
Monday, there were no macro headlines though debate continued about Trump’s
trade policy:
China’s
overture to the US (short):
Congress
and tariffs (short):
Thoughts
on trade (short):
Fears of a trade war aren’t
bothering economists---yet (medium):
Bottom line: so far this
week, investors have been focused on specific industries (retail, oil, tech)
and companies (Starbucks, Tesla) with lots of big moves in the tech sector
which have been the Market darlings for years---the net effect being that valuations
are going from stratospheric to intergalactic. I would take this opportunity to sell a
portion of any big winners---‘a portion’ being the operative phrase.
Update on valuation:
Dividends by the numbers in
May (short):
How corporations spent their
tax cut (medium):
Bridgewater is bearish
(medium):
News on Stocks in Our Portfolios
Revenue of $733M (+5.6% Y/Y) misses by $21.9M.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew slower than in the prior week.
The
May PMI services index came in at 56.8 versus estimates of 55.7.
The
May ISM nonmanufacturing index was reported at 58.6 versus expectations of
58.0.
Weekly mortgage
applications rose 4.1% while purchase applications increased 4.0%.
The
April trade deficit was $46.2 billion versus projections of $49.0 billion.
First
quarter nonfarm productivity rose 0.4% versus forecasts of +0.7%; unit labor
costs rose 2.9% versus consensus of up 2.8%.
International
Other
Slow
wage growth and consumer debt (medium):
An
in depth look at last Friday’s payroll report (medium):
Jim
Chanos on cryptocurrencies and China (medium and a must read):
More
on China’s debt problem (medium):
https://www.zerohedge.com/news/2018-06-05/it-time-start-worrying-about-chinas-debt-default-avalanche
***overnight,
the Bank of China expanded its lending facility to lower grade corporate bonds
(medium):
Second
quarter GDP growth estimates remain strong (medium):
This
is a thoughtful article on how the ‘baby boom’ generation wrecked the US
economy---much of which I agree with (medium and a must read):
What
I am reading today
Five steps to take before
deciding to retire (medium):
The fallacy of the ‘wealth effect’
(medium):
Don’t confuse ‘stuff’ with
investments (medium):
Medicare and social security
insolvency dates near (medium):
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