The Morning Call
7/13/18
The
Market
Technical
The Averages
(DJIA 24924, S&P 2798) had a good day, though volume declined. Breadth improved slightly. 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.
VIX declined 7 ¾
%, remaining below its 100 day moving average (now resistance), below its 200 day
moving average (now resistance) and within a short term trading range. It once again appears headed for a challenge
of the May/June double bottom.
The long
Treasury fell a penny, but still finished well above its 100 and 200 day moving
averages and in a long term uptrend.
The
dollar was up, staying above both moving averages and in a short term uptrend.
Gold
rose ½ %, but continued to trade below both moving averages and near the lower boundary
of its short term downtrend.
Bottom
line: the technical position of the indices continues to improve as the S&P
pushed above June highs---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. 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.
The
‘smart money’ continues to sell (short):
Explaining
the bullish case for stocks (medium):
Fundamental
Headlines
Yesterday’s
economic releases were mixed: weekly jobless claims were solidly better than
anticipated; the headline CPI number was a bit hotter than expected, though ex
food and energy, it was flat; the June budget deficit was smaller than
estimates, though year over year, it
continues to grow.
Yesterday
headlines were basically an Abbott/Costello routine. Trump announced that NATO members would begin
contributing their fair share the NATO defense budget. Immediately, Macron and Merkel responded ‘no
way Melvin’. At the moment, there is no further
clarification. As you know, I think that
this issue is intertwined with the trade; so its resolution will likely have an
impact on tariff talks.
This
from the New York Times (medium):
Meanwhile,
investors interpreted overnight comments from Chinese officials as less
aggressive than expected, suggesting progress was being made in US/China trade
talks. Then, Mnuchin said that there was
no discussions going on. Then, North
Korean Kim sent a friendly letter to Trump, having been highly critical of the
US following Pompeo’s visit. Again,
defusing tensions with North Korea are all part of the trade discussions. So, the assumption has to be that the Chinese
are attempting to calm the trade rhetoric.
https://www.zerohedge.com/news/2018-07-12/kim-thanks-trump-strong-will-sincere-efforts-formal-letter
***overnight, the June Chinese
trade surplus expanded---which clearly won’t help matters. In addition, June credit grew well below
estimates.
Bottom line: if you are
confused, don’t be. Because investors
clearly view confusion as a plus. That
condition could last until there is an outcome, for which I think there is a
decent probability of being positive; and if that happens, then it will be a
plus for the long term secular growth rate of the economy. The questions are (1) how much of that is
already reflected in stock prices and (2) how much of its positive effect be
offset by the usurpation of cash flow/assets to service the mounting debts in
all sectors of the economy?
I don’t think that investors are
properly considering those questions as witnessed by the record equity valuations. I am not suggesting that investors run for
the hills; I am suggesting that this a good time to own some cash.
Putting
tariffs in perspective (medium and a must read):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
June budget deficit was $74.9 billion versus expectations of $91.0 billion,
though the year over year number continues to increase.
June
import prices fell 0.4% versus estimates of a 0.1% increase; export prices came
in +0.3%, in line.
International
Other
Are
the employment numbers really that strong? (medium):
Are
companies investing enough for future growth? (medium):
The
Fed could steepen the yield curve if it wanted (medium):
EU
lowers GDP growth forecast for 2018 (short):
Update
on the oil market (medium):
Some
states are woefully unprepared for a recession (medium):
What
I am reading today
A huge sarcophagus is
unearthed in Egypt (medium):
Mexico’s new president plans to end
the war on drugs (medium):
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