The Morning Call
7/11/18
The
Market
Technical
The Averages
(DJIA 24919, S&P 2793) had another good up day. While volume was flat, breadth improved. The
Dow finished above its 100 day moving average for a second day (now resistance;
if it remains there through the close today, it will revert to support), above
its 200 day moving average for a third day (now resistance; if it remains there
through the close today, it will revert to support) and within a short term
trading range. The S&P ended above
both moving averages and in uptrends across all timeframes. The assumption is that prices are going
higher, though the S&P is now facing minor resistance from its June high.
VIX fell ½ %, closing below its 100 day moving
average (now resistance), below its 200 day moving average for a third day (now
support; if it remains there through the close today, it will revert to
resistance) and within a short term trading range. It is nearing the May/June double bottom;
suggesting that stocks may have to labor for any further short term advances.
The long
Treasury was down a penny, but remains well above its 100 and 200 day moving
averages and is in a long term uptrend.
The
Japanese yield curve is flattening dramatically (medium):
The
dollar was again up fractionally, remaining well above both moving averages and
in a short term uptrend.
Gold
was up another ¼%, but its pin action still looks like nothing more than a dead
cat bounce. It is still below both
moving averages and in a short term downtrend.
Bottom
line: the DJIA’s pin action continues to improve bringing it ever closer to
harmonizing with the S&P---a plus sign for future stock movement. I found
another analyst that agrees with the thought that the confusing performances of
TLT, UUP and GLD is likely the result of investors betting on a relatively positive
US economy versus the rest of the world’s economy.
However, if true (global economic activity
is slowing and could deteriorate even further if a trade war breaks out), I don’t
still don’t want to be fully invested in the equities in a relatively upbeat
economy when their prices are already a short hair off their all-time highs. In other words, if you don’t own some cash,
this is probably a good time to do so.
Yesterday
in the charts (short):
Stock buybacks
hit record highs in first half (medium):
Fundamental
Headlines
Yesterday’s
US economic releases were upbeat: the June small business optimism index and
month to date retail chain store sales were better than expected. Overseas, not so much: July German economic
sentiment was disappointing and June Chinese PPI was hotter than anticipated.
With
a lot of attention on Wimbledon, the Soccer Playoffs, the new Supreme Court
nominee and Trump’s trip to Europe and the absence of any big economically
related headlines, there is not much on which to comment (though the confirmation
of a pro-business judge would be a long term plus for the economy). Investors’ concern about a trade war seems
to be on the backburner for the moment and appear to be anticipating a good
second quarter earnings season.
***overnight,
Trump imposed tariffs on an additional $200 billion of Chinese goods. Remember that this is not immediate, the US
will have to go through a number of procedures before they take effect.
Bottom line: the technical factors continue to point to
further price increases even though those prices are near historic high
valuations. In that circumstance, I think
it makes sense to take some money off the table. As you know, I have already done so. Importantly, not because I think that the indices
suggest equity overvaluation (even though they do) but because individual
stocks within our portfolios have traded into the Sell Half Ranges established
a Model that produces valuations based on very long term financial history of
the underlying companies and historical valuation measures. Even then, my discipline is to only Sell Half
of an overvalued position. Still, I don’t think it prudent to hope for the best
when stock prices are already at highs.
News on Stocks in Our Portfolios
The Procter & Gamble Company (NYSE:PG) declares $0.7172/share quarterly dividend, in line with
previous.
Cummins (NYSE:CMI) declares $1.14/share quarterly dividend, 5.6% increase from
prior dividend of $1.08.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew faster than in the prior week.
Weekly
mortgage applications rose 2.5% while purchase applications were up 7.0%.
June
PPI came in at +0.3% versus estimates of +0.2%: ex food and energy, it was
+0.3%, in line.
International
Other
A
chorus of Trump/trade critics (medium):
The
June dividend report (short):
Fiscal
policy in good and bad times (medium and a must read):
BLS
job opening report (short):
The latest data
on oil supply/demand (medium):
What
I am reading today
Nine essential elements
for committing massive fraud (long):
Mexico’s new president wants to
build a wall against illegal immigration (medium):
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