The Morning Call
6/26/18
The
Market
Technical
The Averages
(DJIA 24252, S&P 2717) got hammered yesterday on rising volume and
deteriorating breadth. The Dow finished
below its 100 day moving average (now resistance) while the S&P remained
above (now support). The DJIA ended
right on its 200 day moving average while the S&P remains well above its MA
(both now support). The Dow is in a
short term trading range, the S&P in a short term uptrend.
The VIX spiked 26 %,
closing right on its 100 day moving average (now resistance), above its 200 day
moving average (now resistance; if it remains through the close on Thursday, it
will revert to support. Remember it has
see sawed above and below this MA over the last three weeks) and within a short
term trading range. It looks like it
bottomed in early June.
The long
Treasury was up ¼ %, 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 again getting close) and remained in a short term downtrend. It seems trapped in the range defined by those
indicators.
The dollar was
down fractionally, but ended below the lower boundary of its very short term
uptrend; if it remains there through the close today, it will reset to a trading
range. However, it is still above both
moving averages and within a short term uptrend.
Well, Virginia,
gold can go up, but with no consistency.
Yesterday, it was down, finishing below its 100 and 200 day moving
averages and in a short term downtrend.
Bottom line: more
cognitive dissonance yesterday with the Dow closing below its 100 day moving
average (now resistance), which is headed lower, and right on its 200 day
moving average. The S&P remains
above both its moving averages, though like the Dow, its 100 day moving average
is rolling over. But until the S&P
is in sync with the Dow, it is too soon to get negative.
On the other
hand, bonds and the dollar continue to trade at odds with each other; and gold is
declining no matter what the news or the pin action in other indicators. In
short, we are getting no directional information from these indices.
Update
on margin debt (medium):
Fundamental
Headlines
Yesterday’s
stats were negative: both the June Chicago Fed national activity index and the
Dallas Fed manufacturing index were really bad; on the other hand, May new home
sales (a primary indicator) were very strong.
In other words, more incongruent data, suggesting a struggling economy.
But
the day was mostly about trade: Trump threatening China and China responding.
Stephen
Roach on Trump’s trade policy (medium):
China
girds for trade war (medium):
And
starts talking tough (medium):
Late
in the afternoon, Navarro provides some soothing words (short):
Making
sense of Trump’s strategy (medium):
***overnight,
Trump back on the EU auto tariffs (medium):
Bottom line: the
threat of a trade war continues to raise uncertainty among investors. To be sure, if things go to hell in a
handbasket, it would have a negative impact on economic activity and corporate
profitability. Conversely, a successful completion
of the trade negotiations would be a major plus.
From a Market
perspective, stocks may fluctuate based on the tone of the rhetoric; but I don’t
see a change in trend (or the lack thereof) until we know the outcome of the
current confrontation. I would juxtapose
that with QE and an out of control fiscal policy both of which we already have
and both of which are bad for the Markets long term.
If I am correct,
equity valuations are too high and investors need to have cash in their
portfolios.
Declining
Market liquidity (medium):
And
the role ETF’s may play in the illiquidity (medium):
The
myth of stocks for the long run (part 4):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
May
new home sales were up 6.6% versus consensus of up 0.4%.
The
June Dallas Fed manufacturing index came in at 23.3 versus expectations of
35.2.
International
Other
Global
finance governance ten years after the crisis (medium);
Trump’s
fascinating economic experiment (medium):
I
think that this guy has been reading my posts (medium):
What
I am reading today
Getting rich slowly (medium):
The secret to a meaningful life
(medium):
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