The Morning Call
7/19/18
Posted 5:00pm 7/18
The
Market
Technical
The Averages
(DJIA 25199, S&P 2815) rose again yesterday, maintaining their upward
momentum. Volume was flat; breadth mixed. 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. 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 was up
slightly, but still finished below its 100 day moving average (now resistance)
and its 200 day moving average (now resistance). Intraday, it traded very close to the lower boundary
of its short term trading range and then bounced; once again suggesting that
stock prices may need to consolidate very short term.
The long
Treasury was down ½ %, but still ended 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.
A break of one of these barriers should be directionally important.
The
dollar was up, staying above both moving averages and in a short term uptrend.
Gold
(116) lifted fractionally, closing below both moving averages (its 100 DMA is
near to crossing below its 200 DMA---an additional negative), within a short
term downtrend and below the minor support offered
by its December 2017 low for a second day.
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 continues to improve. 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’s
economic data was focused on housing: weekly mortgage and purchase applications
fell and June housing starts were dismal.
Powell
gave his second day of congressional testimony, basically repeating his first
day’s narrative: ‘labor market strong,
inflation on track, fiscal policy a plus to growth, the banks in solid
financial condition.’ The bottom
line being that the Fed is staying on track for rate hikes and the unwind of
its balance sheet, but is open to change if the data changes. Nothing new.
The
July Beige Book was also released yesterday and pretty much echoed Powell’s testimony
(moderate growth, inflation rising slowly, firm labor market), save for a much
deeper concern about tariffs.
The
other thing worth mentioning is that CNBC held its annual Delivering Alpha
investor conference. In the multiple
interviews aired were several high profile individuals (Kudlow, Bannon) who
opined that the US is in a trade war with China and that Trump is prepared to
go to the mat to win it. That is not any
sudden insight; but it is a big headline that investors can’t ignore. Which is another factor that speaks to the
positive investor psychology---lousy trade headlines being taken in stride by
the Market.
Bottom
line: it makes no sense to stand in front of a freight train. And right now, that train is investor
psychology. There is nothing to do but
lay back and enjoy it. Actually, there
is something to do---be sure you have some cash reserves.
Three
metrics of stock overvaluation (medium):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
International
Other
What
I am reading today
Are SUV’s ruining
retirement savings? (medium):
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