The Morning Call
7/10/18
The
Market
Technical
The Averages
(DJIA 24776, S&P 2784) had another strong up day, though some of the surge
was short covering as trade war fears faded.
Volume was up only modestly, ditto breadth. The
Dow finished above its 100 day moving average (now resistance; if it remains
there through the close on Wednesday, it will revert to support), above its 200
day moving average for a second day (now resistance; if it remains there
through the close on Wednesday, 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.
VIX fell another 5 %, closing below its 100
day moving average (now resistance), below its 200 day moving average for a
second day (now support; if it remains there through the close on Wednesday, 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 off ½%, falling away from its challenge of the upper boundary of
its short term downtrend (I know I said uptrend yesterday. Sorry for the confusion) but remains well
above its 100 and 200 day moving averages and is in a long term uptrend.
The
dollar recovered fractionally, remaining well above both moving averages and in
a short term uptrend. It continues to perform somewhat at odds with the long
bond.
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 ever closer to
harmonizing with the S&P---a plus sign for future stock movement. I
believe that I have figured out what has been for me the confusing performances
of TLT, UUP and GLD. This all makes
sense if investors are betting on a relatively positive US economy (relatively
is the operative word) 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.
Fundamental
Headlines
One
economic release yesterday: May consumer credit soared higher.
While
there wasn’t a lot of trade news yesterday, there does seem to be a growing
consensus that Trump/US is going to win any confrontation, resulting a big plus
for the economy. As you know, I have
been hopeful for such an outcome and, if it occurs, am convinced that it will
have a positive impact on US long term secular economic growth.
A
Reagan moment for international trade (medium):
How ugly could a trade
war get? (medium):
Bottom line: ‘investors seem to have regained their happy
feet based on the assumptions of a new improved secular economic growth rate, a
satisfactory outcome to the trade talks and a Fed that will not spoil the
party. And they may be correct.’ However, they appear unconcerned about the
growing, already stratospheric, level of debt in the US/globe. The latest consumer credit report amplifies
that point. This debt simply pulls demand
forward and then slows it as the debt is paid off. I am unsure just how much of a negative
offset this is to the positives generated by deregulation and possibly a fairer
trade regime. But as I noted above, I don’t
think it prudent to hope for the best when stock prices are already at highs.
News on Stocks in Our Portfolios
Revenue
of $16.09B (+2.4% Y/Y) beats by $50M.
Economics
This Week’s Data
US
Consumer
credits in May advanced $24.6 billion versus expectations of $12.4 billion.
The
July small business optimism index was reported at 107.2 versus estimates of
106.3.
International
July
German economic sentiment came in at -24.7 versus forecasts of -19.0.
June
Chinese CPI was up Y/Y 1.9%, in line; PPI was up Y/Y 4.7% versus its May
reading of 4.1%.
Other
More
on corporate profits from my optimist (medium):
This
article discusses the impact, or lack thereof, of QE. However, the only effect the author is
measuring is on interest rates movement (medium):
US
heavy truck sales rise (short):
Oil
prices may be heading higher (medium):
Inflation
according to the NY and Atlanta Feds (medium):
What
I am reading today
Lessons
from poker players (medium):
Lessons from Cliff Arness (medium):
A
progressive’s view on illegal immigrants (medium):
Investing 50 years ago (short):
More on the pension crisis (medium):
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