The Morning Call
6/8/18
The
Market
Technical
The Averages
(DJIA 25241, S&P 2770) traded mixed yesterday (Dow up, S&P down). Volume rose; breadth was slightly positive. The Dow finished above its 100 day moving
average for a second day (now resistance; if it remains there through the close
today, it will revert to support). 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 seems about to give way with the Dow ending about its MA and the S&P pushing
out of the trading range that developed around its MA. Assuming follow through, the next resistance
levels are the former highs. Longer
term, the assumption is that stocks are moving higher.
The VIX rose 4 ¼ %, but
still finished 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.
The long
Treasury spiked on heavy volume, ending back above its 100 day moving average
voiding Wednesday’s break (now support), but below its 200 day moving average
(now resistance). It remained within its
long term uptrend and short term downtrend.
The dollar fell fractionally
extending a seven day downtrend but closing above its 100 and 200 day moving
averages (now support) and in short term uptrend.
GLD declined, ending
below its 100 and 200 day moving average (now resistance) and right on the
upper boundary of its short term downtrend.
Bottom
line: despite yesterday’s drift, the
Averages still appear to be breaking away from their 100 day moving average; if
so, then 26656/2874 (former highs) will likely be the next stop and that clearly
gives support to the assumption that long term stock prices will go even
higher. The pin action in TLT, UUP and
GLD didn’t really didn’t tell us much.
Yesterday in charts
(medium):
Fundamental
Headlines
Yesterday’s
economic releases were mixed: weekly jobless claims were lower than anticipated
while growth in April consumer credit slowed.
There were few
notable headlines yesterday. But there
are a number of newsworthy events occurring soon. The G7 meeting starts today and next week
includes several central bank meetings and the Shanghai summit.
At the moment,
it looks like the results of the G7 meeting will carry the most import---because
trade will top the list for discussion and the outcome could potentially have the
most impact on our economy. At the risk
of being repetitious, whether the conclusion is positive or negative it will
likely have an effect on the long term economic secular growth rate of our
economy. Listening to the rhetoric
leading up to this meeting, one would likely be discouraged. However, much of that may just be positioning
before what everyone expects to be a tough negotiating session. Perhaps foolishly, I am optimistic. That said I continue to believe that a trade
war is bad news for the economy.
All wrapped up
in this issue is that of the sanctions against Iran and how they play of the
rest of the G7’s trade with it. This
seems to me to be an even thorny matter.
So I have no clue how this gets solved; but clearly it will bear on the
broader trade question.
The importance of
NAFTA (medium):
The
trade war is already hurting US and China (medium):
Reagan
on protectionism (medium):
Is
national security a good rationale for steel and aluminum tariffs? (medium):
We
also have three central bank meeting next week (US, ECB, Bank of Japan). While they all profess to be either on or
about to start down the path to tightening monetary policy, I continue to view their
statements of intent with skepticism.
True, the Fed had begun the process; but I have little doubt that the
minute there is any sign of trouble, it will cease and desist. That, of course, assumes that it can see a
sign of trouble when it is occurring---which it has proven quite incapable of
in the past. Historically, these guys have
paid far too close attention to their models and ignored what is happening
around them---I refer you to any one of Bernanke’s or Yellen’s statements over
the last decade as proof. My
bottom line is that the Fed will raise rates (as is widely anticipated) and we will
get nothing but prevarication from the rest.
Finally,
Un and the Donald go one on one next week.
Both these guys are so unpredictable, I have no clue how this summit
will turn. However, my underlying
assumption is that the North Koreans will lie and then break any agreement the
first chance they get. So our best
strategy is not to give them the chance.
Bottom
line: we are looking at an event filled week which has the potential for some
explosive headlines. That said, we could
nothing more than two jerks and wiggle.
Whatever occurs, stocks are still overvalued and the central banks still
have to unwind the massive mispricing and misallocation of assets.
News on Stocks in Our Portfolios
Genuine
Parts Company (GPC +0.4%) announces to
acquire Hennig Fahrzeugteile, German supplier of light & commercial
vehicle parts.
Deal terms were not
disclosed.
Economics
This Week’s Data
US
April
consumer credit rose $9.3 billion versus forecasts of up $14.0 billion.
International
May
German industrial production fell 0.1% versus estimates of +0.3%; France’s
declined 0.5% versus expectations of +0.3%.
First
quarter Japanese GDP decreased 0.6%.
China’
May trade balance was $24.9 billion versus forecasts of $33.3 billion.
Other
A
great analysis of the social security trust fund math (medium and a must read):
Household net
worth in the first quarter (medium):
This
is an analysis poo pooing the notion that national is a problem. It focuses on the magnitude of the debt and
the more important number---the magnitude of the debt relative to GDP.
What
I am reading today
Some legal ways to sue
your retirement saving early (medium):
A look at global
demographics (medium):
The importance of your time horizon (medium):
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