The Morning Call
7/27/18
The
Market
Technical
The Averages
(DJIA 25527, S&P 2837) turned in a widely divergent performance yesterday (Dow
up 112.97, S&P down 8.63). Volume
was up as was breadth---which is approaching overbought territory. The Dow continued to trade above its 100 day
moving average (now support), above its 200 day moving average (now support)
and within a short term trading range.
The S&P ended above both moving averages and in uptrends across all
timeframes. The previous cognitive
dissonance I noted has dissipated: (1) the Dow’s 100 day moving average has
flattened out and (2) it closed above its June high. The assumption remains
that the indices on their way to all-time highs.
VIX declined fractionally,
not surprising given the day’s schizophrenic pin action. It remains below both moving averages and in
a narrow trading range near the lower boundary of its short term trading
range. But it doesn’t seem to want to
challenge that lower boundary.
The long
Treasury was down. It closed below its 200
day moving average for a fourth day, reverting to resistance, and back below
its 100 day moving average (now support; if it remains there through the close
on Monday, it will revert to resistance). It remains caught between the declining upper boundary
of its short term downtrend and the rising lower boundary of its long term
uptrend; though, at present, it is closer to the latter and it is losing
technical strength. A break of this
developing pennant pattern has directional import.
The
dollar was up ½ % on good volume, ending above both moving averages and in a
short term uptrend but remains below its June high.
Gold
was down ¾ %, likely reflecting the stronger dollar and higher interest rates. It finished below both moving averages (its
100 day moving average has now crossed below its 200 day moving average---not a
technical plus) and in a short term downtrend.
Its pin action suggests that it will challenge the lower boundary of its
intermediate term trading range (roughly 10 points lower).
Bottom
line: my conclusion yesterday was that
investors didn’t have enough time to react properly to the late in the day news
of the US/EU trade truce and that we would have a better read on sentiment by
the end of trading today. Well, not so
much. On the one hand, the Averages had
decidedly different sessions. On the other
hand, the Dow’s positive performance put it back in sync with the S&P. And the latter has a much longer term
implication. So my assumption of a
challenge of the all-time highs remains.
TLT, UUP and GLD
investors appeared to agree that the US/EU cease fire was good for the US
economy.
Yesterday
in the charts.
Fundamental
Headlines
Yesterday’s
economic data was not good: June durable goods orders, the June trade deficit
and the Kansas City Fed manufacturing index were below estimates, while weekly
jobless claims were up less than anticipated.
That means that no matter how positive today’s second quarter GDP report
is, this week’s stats will be negative overall.
Speaking
of which, a good deal of yesterday’s news flow was focused on pundits speculating
on the magnitude of that GDP growth report.
While the entire planet knows that the number will be an improvement
over the first quarter reading, the talking heads were very upbeat. However, there were some less enthusiastic.
The
second quarter GDP mirage (medium and a must read):
Naturally,
there was also debate on the potential economic implications of the US/EU cease
fire. As you know, I have been a
supporter of Trump’s efforts to reframe the global trade regime; so I was
encouraged. Others not so much.
This from a
cynic and clearly no Trump supporter (short):
A more balanced
view (medium):
A
view from the outside---China not happy with US/EU accord (short):
In
other news, the ECB met, left rates unchanged and confirmed that it will end QE
December 2018---undoubtedly made easier by the US/EU truce. (short):
Bottom
line: I want to make clear that I believe that Trump is on the right track with
respect to trade policy and, if successful, the changes will be a plus for the
long term secular growth rate of the country.
On the other
hand, on a cyclical basis, I believe that the present giddiness over the
anticipated upbeat Q2 GDP report is misplaced and doubt that the reported growth
rate is sustainable. The primary reason
is that our ruling class keeps heaping debt on the electorate---which I believe
is a major impediment to growth. I have
beat this horse to death so I won’t get repetitious; but provide this link to
the NY Times, of all places, which happens to agree with me. (medium):
Finally, to date,
investors have ignored the potential consequences of a global unwinding of
QE. The US has already started. The ECB just reiterated that it will begin in
December. The Bank of Japan is doing the
green apple two step trying to start its own tightening while convincing
investors that it is not. My thesis
remains that when tightening begins in earnest, the Markets will pay a price.
News on Stocks in Our Portfolios
Revenue
of $3.67B (+20.3% Y/Y) beats by $20M.
Revenue
of $5.35B (-11.6% Y/Y) beats by $30M.
Economics
This Week’s Data
US
June
durable goods orders rose 1.0% versus projections of up 3.2%; ex
transportation, they increased 0.4% versus expectations of up 0.5%.
The
June US trade deficit was $68.3 billion versus estimates of $67.2 billion.
Weekly
jobless claims were up 9,000 versus forecasts of up 12,000.
The July Kansas
City Fed manufacturing index was reported at 23 versus the June reading of 28.
International
Other
Saudi’s halt oil
shipments through Red Sea (medium):
What
I am reading today
How to avoid screwing up
your retirement (medium):
Buying a home counts as savings
(medium):
Why are there so many suckers?
(medium):
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for Survival’s website (http://investingforsurvival.com/home)
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