The Morning Call
7/24/18
The
Market
Technical
The Averages
(DJIA 25044, S&P 2806) turned in a mixed performance (Dow down, S&P
up). Volume declined; breadth mixed. 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, in uptrends across all
timeframes. There is a bit of cognitive
dissonance: the S&P has made fourth successively higher highs while the Dow
failed which also has been unable to challenge its former high. At the moment, I don’t think that this is all
that important. So I continue to assume
the indices will now challenge their all-time high.
VIX fell 1 ¾ %,
remaining below both moving averages and in a narrow trading range near the
lower boundary of its short term trading range.
It doesn’t seem to want to challenge that lower boundary which would
mean that stocks are in for some congestive trading.
The long
Treasury got hammered again on big volume.
In two sessions, it has gone from testing the upper boundary of its
short term downtrend and trading above both moving averages to nearing the
upper boundary of its long term uptrend and ending below its 100 day moving
average (now support; if it remains there through the close on Wednesday, it
will revert of resistance) and its 200 day moving average (now support; if it
remains there through the close on Thursday, it will revert to resistance). Clearly a significant change in momentum.
Also:
The
dollar was up on volume. It remains
above both moving averages and in a short term uptrend but remains below its
June high.
Gold
was down another ½%, finishing below both moving averages 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: the indices appear to be doing some
consolidation after a good run. However,
their technical position remains strong.
The assumption remains that
stock prices are going higher.
The price
performances of TLT and UUP have decoupled over the last two trading days with
TLT falling on the perception that global long term rates are going higher but
the dollar remaining strong as the US is still viewed as the best economy on
the planet.
GLD remains the
ugly duck
Yesterday
in the charts:
Fundamental
Headlines
Yesterday’s
economic data was not that impressive: June existing home sales were a
disappointment; the June Chicago Fed national activity index came in well above
forecasts but the May number was revised down by more than the index beat June expectations.
Investors
were given a lot to think about aside from US economic growth:
(1)
the Chinese insisted that they weren’t engaged in a
currency war.
And if you believe that I have a bridge for sale.
They also appear to be considering
another measure---a boycott (medium):
(2)
I mentioned in the last Closing Bell that the Bank of
Japan was trying to come up with some new ‘metric’ that would allow it tighten
without having to admit to it. That didn’t
work (medium):
More
(medium):
(3)
continued nervousness that Trump’s criticism of the Fed
could lead to something more serious (medium):
(4)
and last but not least, US and Iran swapped threats
(medium):
Bottom
line: what mystified me about yesterday’s pin action is that the long bond is
getting murdered because fixed income investors are becoming increasingly
worried about the unwinding of global QE and its natural consequence (higher
interest rates) but equity investors didn’t really seem to care. But quantitative tightening means not just
higher interest rates (a key component of stock valuation is the discount
factor, i.e. the interest rate, at which future earnings are brought
forward. The higher the interest rate,
the lower the valuation), it also means shrinking money available for equity investment/speculation
(as the Fed/BOJ/ECB sell off their bond portfolios, the funds to buy those
bonds has to come from someplace; one of which is equities). That doesn’t mean stock prices will roll over
tomorrow; it does mean that over time there will be less investment funds to
buy all securities, that interest rates will rise and that equity investors
will sell equities to buy higher yielding bonds.
Stock
buybacks hit record levels and guess who is selling? (medium):
Dan
Loeb’s outlook (short):
News on Stocks in Our Portfolios
Illinois Tool Works (NYSE:ITW):
Q2 EPS of $1.97 in-line.
Revenue
of $3.83B (+6.4% Y/Y) misses by $10M.
Economics
This Week’s Data
US
The
June Chicago Fed national activity index was reported at .43 versus estimates
of .23; but May was revised down by an even greater difference from -.15 to
-.45.
June
existing home sales fell 0.6% versus expectations of being flat.
International
Other
More
on Trump on Fed policy (short):
More
on the public employee pension crisis (medium):
The
latest on Brexit (medium):
What
I am reading today
This is a great interview
with Silicon Valley titan Peter Thiel (a bit long but worth the read):
The humility curve (also a bit long,
also worth reading):
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