The Morning Call
7/18/18
The
Market
Technical
The Averages
(DJIA 25119, S&P 2809) rose yesterday, maintaining their upward momentum. Volume was up slightly; breadth improved. 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 assumption has to be that the
indices will challenge their all-time highs (26656/2874).
VIX was down 6 %,
finishing below its 100 day moving average (now resistance), below its 200 day
moving average (now resistance) and within a short term trading range but near
its lower boundary.
The long
Treasury was down fractionally, but still ending well above its 100 and 200 day
moving averages, in a long term uptrend but in a short term downtrend. These two trends (the upper boundary of the
short term downtrend and the lower boundary of the long term uptrend) continue
to narrow (they are about 3 points a part).
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) was down 1% on heavy volume, 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.
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 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.
Fundamental
Headlines
Yesterday’s
economic stats were mixed: month to date retail chain store sales growth was
down, July housing index was in line and June industrial production was in line
(though the May number was revised down big).
Fed
chair Powell completed his first of two days of congressional testimony. The narrative remains upbeat: labor market
strong, inflation on track, fiscal policy a plus to growth, the banks in solid
financial condition. What’s not to
like? Importantly, it justifies the Fed
staying on track for rate hikes and the unwind of its balance sheet. But he cautioned that this is all subject to
change if the data changes (dovish caveat which the Markets embraced). However, I don’t believe that it is the data
that Fed is worried about; it is the Market.
So the $64,000 question is, will policy change if the Market changes?
Highlights
from Powell’s prepared statement (medium):
I
think it also an important indication of investor sentiment that Netflix, an
investor darling and one of the best performing of the Market leading FANG
stocks, issued a disappointing narrative on subscriber growth (the stock was
down 5%) and the Market showed little weakness aside from that specific to
Netflix.
Bottom
line: a possible trade war. who cares? the Fed expects to continue to tighten
monetary policy. Pffffff. the yield curve is flattening. give me a
break. Trump stomps on his own d**k. so
what. a Market darling disappoints. fugitabotit. Stocks are going up; and that’s great. But doesn’t keep me from feeling comfortable
with a decent cash position.
The
latest BofA macro investor survey (medium):
The
tax cut and earnings growth (medium):
News on Stocks in Our Portfolios
BlackRock (NYSE:BLK) declares $3.13/share quarterly dividend, 8.7% increase from
prior dividend of $2.88.
Revenue
of $2.86B (+9.2% Y/Y) beats by $40M.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew slower than in the prior week.
June
industrial production was up 0.6%, in line; however, the May reading was
revised from -0.1% to -0.5%; capacity utilization was 78%, in line.
The
July housing index came in at 68, in line.
Trouble ahead for the
housing market (medium):
Weekly mortgage
applications fell 2.5% while purchase applications were down 5.0%.
June
housing starts declined 12.2% expectations of a 0.2% decrease.
International
Other
Freight
volume and recession (short):
Lehman
Brothers and the Fed (short):
Trade
tension and China (medium):
What
I am reading today
The high administrative
costs of the US health care system (medium):
Growing your portfolio takes time
and patience (medium):
Records are made to be broken
(short):
The rationale for diversification
(medium):
The importance of humility (medium):
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