The Morning Call
8/3/18
The
Market
Technical
The Averages
(DJIA 25326, S&P 2827) were mixed yesterday (Dow down, S&P up) on lower
volume and weaker breadth. They remain
strong technically, but have a few minor negatives (1) the Dow fell back below
its June high, (2) its 100 DMA is right on its 200 DMA and moving lower and (3)
VIX remains range bound since mid-July between its 200 DMA and the lower boundary
of its short term trading---which is providing no directional information.
The major
technical story continues to be the decline of TLT (increase in interest rates)
below its 100 DMA for the second day (now support; if it remains there through
the close today, it will revert to resistance) and, more importantly, the lower
boundary of its long term uptrend for a second day (if it remains there through
the close next Wednesday, it will reset to a trading range). While neither of these challenges have yet
proven successful, as I noted previously, a break especially of the long term
uptrend has major fundamental (much higher rates) as well as technical significance.
The
dollar bounced, remains technically strong and appears to be confirming a move
to higher rates. GLD was hammered
(again), still has the ugliest chart around and is also pointing towards higher
rates.
Bottom
line: the Averages remain quite strong
technically speaking, though cracks are again appearing. The technical assumption remains that they
are going to challenge their all-time highs.
TLT’s performance has potentially important negative
fundamental as well as technical implications.
I want my time and distance discipline to work itself out before
assuming that the twenty year bond bull market is over. Plus, I would remind everyone that TLT successfully
challenged the lower boundary of its long term uptrend in mid-May and quickly
reversed itself. On the other hand,
since that mid-May break, the dollar has continued to rise and GLD to fall,
suggesting that they were anticipating higher interest rates. Stay tuned.
Yesterday
in the charts.
The
bull case (medium):
Fundamental
Headlines
Yesterday’s
stats were somewhat disappointing: weekly jobless claims were up slightly but
in line with estimates; on the other hand, June factory orders rose less than
expected.
Investor’s
main focus was extensions of late Wednesday night news:
(1)
the Donald’s threat to increase the tariff rates on
Chinese goods from 10% to 25%.
Why Trump is increasing tariffs on
China (medium):
China likely to have a first half current
account deficit (medium):
***overnight:
Mirroring Trump’s
moves toward China (extending deadline of imposition of tariffs, then raising
the tariff rates), China increased reserve requirements, essentially halting
the Yuan devaluation;
Then,
it put forth its own list for higher tariffs (short):
(2)
The media/Street obsession with Apple becoming the
first trillion dollar capitalization company in history, plus who might be the
next. I suppose that statistically that
is a circumstance worth more than a moment’s contemplation. But the prolonged ogling, I don’t
understand. It’s a number. As the economy grows, it is an inevitable number. As an inevitable number, it doesn’t mark a
new age in the economy or in equity valuation.
It just means the US economy has gotten bigger---which we already
knew. My concern is that this is just
another late Market sign of too much optimism.
Bottom line:
nothing has changed. I like the cash
reserves I have in my portfolio.
July
dividends by the numbers (medium):
Update
on market valuation (medium):
News on Stocks in Our Portfolios
Automatic Data Processing (NASDAQ:ADP) declares $0.69/share quarterly dividend, in line with
previous.
Revenue
of $4.24B (+62.5% Y/Y) beats by $320M.
Economics
This Week’s Data
US
June
factory orders rose 0.7% versus expectations of a 0.9% increase.
July
nonfarm payrolls rose 157,000 versus estimates of +190,000; however, the June
number was revised from +213,000 to +248,000.
The
June trade deficit was $46.3 billion versus consensus of $45.6 billion.
International
Other
This
is the kind of nonsense about the discussion of the budget deficit/national
debt that obfuscates the issue. The
author points out that the amount of debt is technically irrelevant, which is
true enough, but fails to deal with the problem of servicing it. The government can, of course, issue more
debt to pay the interest but that usurps savings that would otherwise go to
investment. He also provides a laundry
list of potential uses for more deficit spending which assumes that the
political will address those needs wisely.
One only has to think of the $1 trillion spending bill on ‘shovel ready’
projects foisted on the taxpayers by Obama.
Inflation
is on the rise (medium):
What
I am reading today
Willing
losers (medium):
There
is a fine line between over saving and under living (medium):
If you take risk, get compensated
for it (medium):
Rising level of protests in Iran
(medium):
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