The Morning Call
7/20/18
The
Market
Technical
The Averages
(DJIA 25064, S&P 2804) sold off yesterday.
Volume was up slightly; breadth deteriorated. The Dow continued to trade above its 100 day
moving average (now support), above its 200 day moving average (now support),
within a short term trading range but remains below its June resistance high. The S&P ended above both moving averages,
in uptrends across all timeframes and above the minor resistance from its June
high. Yesterday’s pin action and the somewhat
lagging performance of the Dow notwithstanding, the assumption has to be that the
indices will challenge their all-time highs (26656/2874).
VIX jumped 6 ½ %,
but still finished below its 100 day moving average (now resistance), below its
200 day moving average (now resistance) and continued the bounce off the lower
boundary of its short term trading range.
The long
Treasury was up ½ %, ending well above its 100 and 200 day moving averages, in
a long term uptrend but in a short term downtrend. The most noteworthy aspect of this chart is
the narrowing gap between the upper boundary of the short term downtrend and
the lower boundary of the long term uptrend.
Yesterday, TLT finished very close to the upper boundary of the short
term downtrend.
The
dollar was up ¼% on volume, staying above both moving averages, within a short
term uptrend and very near the June high (if it trades above that level, it
will re-establish a very short term uptrend).
Gold
(116) was down another ½% on huge volume, closing below both moving averages (its
100 DMA is a short hair a way from crossing below its 200 DMA---an additional
negative), within a short term downtrend and below the minor support offered by its December 2017 low. The next visible support level is the lower
boundary of its intermediate term trading range (106); so there is plenty of
room for more downside.
Bottom
line: the technical position of the indices remains strong and the assumption
remains that stock prices are going higher
and will at a minimum challenge their former highs.
TLT, UUP and GLD continue to perform like
investors are betting on a relatively positive US economy versus the rest of
the world’s economy. The only problem, in my opinion, is that
doing less poorly than the rest of the world is not a reason for stocks to
advance when they are already near historic high valuations.
Yesterday
in the charts (medium):
Fundamental
Headlines
Yesterday’
economic data was positive: weekly jobless claims and the Philly Fed
manufacturing index were better than anticipated; the June leading economic
indicators were slightly better than expected, but the May number was revised
down more than the June increase which is a big offset.
The
highlight of the day was another d**k stomping moment for the Donald. In an interview, he opined that the Fed
shouldn’t be raising interest rates because they hinder economic growth by
driving the dollar up (a strong dollar means US exports are more expensive and
imports from say China are less expensive)---when he was doing all he can do to
improve the economy. This is so stupid
on so many levels that I can’t believe anybody on his staff had any idea that
he was going to say what he did.
First of all,
the Fed was created as an independent agency so that it would remain above
politics. Historically, that has
generally been respected by the office of the president for obvious reasons. Even if Trump is correct (which is
questionable), making a comment like he did just puts him at odds with himself
in trying to reduce government regulations.
How can he justify wanting to reduce government oversight of the economy
and then insinuate the need for more government control over what is an
independent agency?
Second, the
dollar is up because (1) the Chinese yuan is down because the Chinese
government’s decision to devalue it in response to Trump’s imposition of
tariffs on Chinese goods [a lower yuan means Chinese goods are cheaper and it
thereby offsets at least part of the impact of tariffs] and (2) the US economy
is currently one of the relatively strongest of the globe’s economies. Investors generally seek to put their funds in
the relatively best performing economies---which is a good thing for the US not
a bad thing.
Finally, on a historical
basis, US interest rates are very low. Indeed,
as you are well aware, one of my major beefs with the Fed has been and remains that
it has kept rates too low; and, as a result, this has led to the mispricing and
misallocation of assets.
Emphasizing this point is the growing
awareness that the Chinese are deliberately driving down the yuan, raising
concerns that the trade war has been joined by a currency war.
Monetary policy
is driving the Markets (medium):
More
(medium):
Last but not least the EU announced
said that it is now preparing a new list of US goods to hit with tariffs.
Bottom
line: my wife and I used to laugh about the antics of our teenage
daughter. Our favorite saying was that
she wakes up every morning, sits on the side of bed and says to herself ‘what can
I do to screw my life up today?’ and then she would go out and do it. Sometimes Trump reminds me of that time in my
life. Yesterday was one of those
times. I have no clue what he was
thinking. My guess is that today will be
spent trying to walk back his statements/logic.
While
I like a lot of what Trump is trying to do, I worry that he will undermine his
own efforts.
On
days like today, Trump makes me happier than I should be that I own a decent
cash position.
News on Stocks in Our Portfolios
Revenue
of $20B (+3.7% Y/Y) beats by $120M.
Revenue
of $4.82B (+17.6% Y/Y) beats by $140M.
Coca-Cola (NYSE:KO) declares $0.39/share quarterly dividend, 5.4% increase from
prior dividend of $0.37.
Economics
This Week’s Data
US
Weekly jobless
claims fell 8,000 versus estimates of +6,000.
The
July Philadelphia Fed manufacturing survey was reported at 25.7 versus
forecasts of 22.0
The
June leading economic indicators came in up 0.5% versus expectations of up
0.4%; but the May number was revised from +0.2% to 0.0%.
International
Other
Fed
policy is still easy (short):
Why
interest rates are low (medium and a must read):
China
suffers is biggest bankruptcy of 2018 (medium):
The latest on the EU/US
trade spat (medium):
What
I am reading today
Tips on grilling fish,
hamburgers and ribs (medium):
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