Thursday, April 4, 2019

The Morning Call---2025. Really?

The Morning Call


The Market

The Averages (DJIA 26218, S&P 2873) advanced modestly yesterday.  Having overcome very short term negatives on Tuesday, there is no resistance between current prices and their all-time highs.  So, my assumption is that the indices will challenge those highs; but there are still negatives that may inhibit momentum---the pin action in the dollar and bonds as well as Monday’s gap up open (that will likely be closed.

Volume rose slightly.  Breadth remained mixed.

The VIX was up 2 ¾ % (a bit unusual for an up stock price day), ending back above its double bottom and the first step in building an inverse head and shoulders (a negative).  

The long bond got clocked again, though its chart remains strong---in a very short term uptrend and above MA’s.  However, it is now starting to close that gap open of two Friday’s ago. More downside would not be surprising.

The dollar was down four cents. It remains above the upper boundary of the November to present trading range (a move above its prior high would put this trading range in the dust bin; but it still hasn’t happened), above both MA’s and in a short term uptrend.  The bad news is that it gapped up on last Wednesday’s open and that needs closing.

GLD fell slightly.  It is still in a solid uptrend and Thursday’s gap down open needs to be closed; but it continues to develop a head and shoulders pattern.

Bottom line: the pin action in the Averages continues to improve; and they are likely headed for their all-time highs.  However, there is enough negatives coming from other indicators (not the least of which is Monday’s gap up open) to create some doubt about the strength of any upward momentum.
Wednesday in the charts.



Yesterday’s numbers were tilted to the plus side: the March Markit services and composite PMI’s better than consensus while mortgage and purchase applications soared; on the other hand, the March ISM nonmanufacturing index and the March ADP private payroll report were disappointing.

            Overseas, China continued to report upbeat data.  The March Chinese Caixin services and composite PMI’s were above forecasts.  The EU also turned in positive reports: its March services and composite PMI’s were ahead of expectations while February retail sales were strong.  The March Japanese services PMI was slightly below estimates.

            The international economic dataflow thus far this week has improved, especially from China.  While it is way too soon to assume a change in trend, it still must be noted.   As always, follow through is what counts.  Remember, I said the same thing about a month ago regarding better US numbers which then quickly faded.  More information (suggesting the Chinese data veracity may be in question?):

            Japan struggles as Chinese economy slows.

            German Institute cuts GDP growth forecast in half.

                Italy slashes 2019 growth outlook.
            Other news:

            The latest rumor on China trade talks is that the US will give the Chinese until 2025 to comply with any agreement on industrial policy and IP theft.  If true (operative words), it will undoubtedly have a positive short term effect on trade volume/economic growth, assuming tariffs are lifted.   But the end result would be just as I feared---Trump gets out maneuvered for the sake of making a deal which in the end fails to address the major aspects of China’s unfair trade practices.

The roller coaster rhetoric on closing the border.

            Bottom line: the question is how real is the data out of China?  I said that I have to accept it as credible; however, the key will be whether the improvement shows up in the stats from other countries that are its major trading partners.  So far, it hasn’t.  But it is way too soon to assume that it won’t.

            The latest rumor (operative word) on the terms of the US/China trade deal are extremely disappointing.  If anything close to this outcome occurs, it will be a negative for the long term secular growth of the US economy.  Yes, there will likely be a short term cyclical impact as trade expands.  But a lot of time will have been wasted and, at least for me, a lot of Trump credibility will be destroyed.

    News on Stocks in Our Portfolios


   This Week’s Data


The March Markit services PMI was 54.6 versus expectations of 54.3; the composite PMI was 55.3 versus 54.8.

The March ISM nonmanufacturing index was 56.1 versus estimates of 58.0.

                Weekly jobless claims fell 10,000 versus forecasts of a rise of 4,000.


February German factory orders dropped 4.2% versus consensus of +.3%.


            Median new home prices continue to decline.

            Light vehicle sales per capita.

            The decade of deleveraging….or not.

            Sheila Bair on student loans.
            World Trade Organization says global will likely continue to slow.

What I am reading today

            10 common myths about getting older.

            Another great letter from Howard Marks.

            Productivity is about attention management.
            What is behind Bitcoin’s surge?

            Quote of the day.

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