The Morning Call
7/25/18
The
Market
Technical
The Averages
(DJIA 25241, S&P 2820) resumed their upward trajectory on higher volume and
slightly better breadth. 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. Some cognitive dissonance continues: (1) the
Dow’s 100 day moving average is very close to crossing below its 200 day moving
average and (2) the S&P has made a fifth successively higher highs while
the Dow failed and still hasn’t been able to challenge its June high. I continue to assume the indices will now
challenge their all-time high though the more cognitive dissonance grows, the
less sure I am.
NASDAQ streak
setting records (short):
VIX fell 1 ½ %, a
surprisingly small decline given the indices’ pin action. It remains 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 bounced ¼ % on volume after two horrible days. It managed to close above its 100 day moving
average (now support), negating Monday’s challenge but remained below its 200
day moving average for a second day (now support; if it remains there through
the close on Thursday, 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 close to the latter. A break of this developing pennant pattern
has directional import.
The
dollar was up fractionally. It ended
above both moving averages and in a short term uptrend but remains below its
June high.
Gold
was up pennies, finishing below both moving averages (its 100 day moving average
is now crossing 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: though the indices were up, there
are signs that further advances may be a struggle as the technicals weakened a
bit more yesterday (Dow out of sync with the S&P; VIX not really suggesting
strong upside momentum). I still think
that stocks will make a run at their all-time highs; though if the technical
indicators sour further, it may be more difficult than I thought it would be a
month ago.
The price
performances of TLT and UUP took a breather yesterday after two volatile trading
days. Last week’s reversal seemed to be
indicate that investors were selling TLT on the perception that global long
term rates are going higher but holding the dollar as the US is still viewed as
the best economy on the planet. I think
more follow through is needed before buying into that scenario.
GLD remains the
ugly duckling.
Yesterday
in the charts (medium):
Fundamental
Headlines
Yesterday’s
economic releases were positive overall: month to date retail chain store sales
and the July Richmond Fed manufacturing index were pluses; but the July PMI
composite and services flash indices were below estimates while the
manufacturing index was above.
Trade
continues to dominate the headlines:
(1)
China added fiscal stimulus to its monetary stimulus in
attempt to offset impact of tariffs: tax cuts aimed at stimulating R&D, easing
restrictions on debt financing by small companies, increasing government
expenditures in the natural gas, transportation and telecom sectors and a measure
to increase foreign investment,
(2)
Trump responses by announcing subsidies to farmers
(medium):
(3)
EU Commission President Juncker met with Trump
(medium):
(4)
investors continue to try to quantify the impact of a
potential trade war:
[a] a trade war’s impact on corporate earnings (short):
[b]
signs that a trade war is starting to impact the economy (medium):
Bottom
line: to date, things aren’t exactly going Trump’s way in the trade war. So much so that now he is having to spend
taxpayer money to offset measures that were supposed to lead to saving
taxpayers money. To be sure, at the
moment, the pockets of domestic pain are scattered and current estimates of the
gross impact of the measures imposed or threatened are relatively small. So the effect on the Markets should also be
limited.
Meanwhile,
the economy is not performing as many would have us believe:
Personal
income and spending are not pointing to a robust economy (short):
US
business cycle report (medium):
US
wage growth (medium):
And
the major central banks’ monetary policies are diverging: the US tightening,
the BOJ and ECB reportedly about to tighten and the Bank of China now pumping
money into the financial system in an attempt to mitigate the impact of
tariffs. I am not sure how this all
works out; but it seems like it would introduce some volatility into the fixed
income markets, for sure, and that could spill over into the equity markets
With
stock prices only fractionally off their all-time highs, some cash in my
portfolio promotes sleep at night.
The
latest from Doug Kass (medium and a must read):
The
outlook for dividend growth through the end of 2018 (short):
News on Stocks in Our Portfolios
Revenue
of $8.39B (+7.4% Y/Y) beats by $20M.
Revenue
of $4.6B (+0.4% Y/Y) misses by $20M.
Revenue
of $4.77B (+27.5% Y/Y) beats by $100M.
Revenue
of $16.71B (+9.4% Y/Y) beats by $440M.
Revenue
of C$3.63B (+9.0% Y/Y) beats by C$30M.
Canadian National Railway (NYSE:CNI) declares CAD 0.455/share quarterly dividend, in line with
previous.
Revenue
of $38.99B (-2.1% Y/Y) misses by $300M.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew more rapidly than in the prior week.
The
July PMI composite flash index was reported at 55.9 versus forecasts of 56.3;
manufacturing was 55.5 versus
54.9; services was 56.2 versus 56.4.
The
July Richmond Fed’s manufacturing index was 20 versus expectations of 19
International
Other
Trump
wants to blame the Fed not control it (medium):
The
EPA has slashed costs and red tape (medium):
What
I am reading today
Money mistakes that
shrink retirement income (medium):
Why retirees should reduce the
equity exposure in their portfolio (medium):
Can bitcoin become the global
monetary standard? (medium):
Can you eat risk adjusted returns?
(medium):
The seven deadly sins in investing
(medium):
The high cost of diversity (medium):
http://www.aei.org/publication/diversity-and-other-administrative-monstrosities-in-higher-education/
The importance of the ban on plastic
drinking straws (short):
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