The Morning Call
7/17/18
The
Market
Technical
The Averages
(DJIA 25064, S&P 2790) turned in a mixed performance yesterday (DJIA up,
S&P down). Volume declined but
breadth improved. 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 and above the minor resistance from its June
high for a third day. The assumption has
to be that it will now challenge its all-time high (2874).
VIX rose 5 ½ %, but
still finished below its 100 day moving average (now resistance), below its 200
day moving average (now resistance) and within a short term trading range. But for the second time in a week, it rallied
before challenging the lower boundary of its short term trading range.
The long
Treasury was down ½ %, ending well above its 100 and 200 day moving averages,
in a long term uptrend but fell back below the upper boundary of its short term
downtrend, negating Friday’s break.
The
dollar was down fractionally, but stayed above both moving averages and in a
short term uptrend.
Gold
was down slightly, continuing to trade below both moving averages (its 100 DMA
is near to crossing below its 200 DMA---an additional negative) and near the
lower boundary of its short term downtrend. The only possible positive is that it is held
above the minor support offered by its December 2017 low.
Bottom
line: the technical position of the indices continues to improve---the only real
negative being that both 100 day moving averages continue to fall toward their
200 day moving averages. The assumption
remains that stock prices are going higher.
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. And that is being confirmed by the data flow
(see below). 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 mixed to somewhat positive: the July NY Fed manufacturing
index was above forecasts; June retail sales were in line, though ex autos and
gas, they were disappointing; May business inventories were in line, but sales
were better than anticipated.
Overseas,
Chinese stats were mixed to somewhat negative.
Trump
held the headlines yesterday with his comments following his meeting with
Putin; and they were not well received.
Universal condemnation comes to mind.
Lost in the shuffle was the imposition of retaliatory tariffs by five
countries against US which then filed a complaint with World Trade Organization. Not to state the obvious; but so far, the
Donald’s trade strategy is not having the hoped for results. (medium):
I
normally avoid discussions of politics since this is an investment blog; but
given yesterday’s (and who knows how long this will last) hue and cry, I thought
this left/right debate interesting and helpful in putting the Putin meeting in
perspective (medium):
Aside
from trade, this week investors will also be dealing with Fed Chair Powell’s
Humphrey-Hawkins testimony before congress (senate today, house tomorrow). Plus the meat of second quarter earnings
season begins.
Bottom
line: while the dataflow this week will low volume wise, but it will be heavy
for the primary indicators. June retail
sales (which wasn’t that impressive) started us off with industrial production,
housing starts and leading economic indicators following up. That said, if investors continue to kid
themselves about the underlying strength in the economy, anything short of a
catastrophe will likely be greeted as good news.
Expectations for
this earnings season are reasonably upbeat.
As long as that scenario plays out, equities will likely maintain the
upward momentum.
As
I noted above, to date, the trade narrative has not been good. The longer it remains that way, the more likely
it will return as a drag on stock prices.
With
stock prices at historically high valuations and momentum remaining to the
upside, investors are being provided with an excellent opportunity to build
cash reserves. I am not suggesting that
they run for the hills, just use price strength to provide a source of funds
for purchasing bargains when the second half of this Market cycle inevitably
occurs.
Are
‘bubbles’ the new norm (medium):
News on Stocks in Our Portfolios
Revenue
of $20.83B (+10.6% Y/Y) beats by $440M.
Economics
This Week’s Data
US
May business
inventories rose 0.4%, in line; sales were up 1.4%.
International
Other
A trade war and high global debt
don’t mix (medium):
Update on big four economic
indicators (medium):
What
I am reading today
Mueller’s Russian
indictments (medium):
Quote
of the day (short):
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