Wednesday, April 24, 2019

The Morning Call--Challenging the all-time highs


The Morning Call

4/24/19

The Market
         
    Technical

So much for more consolidation.  Clearly, last week’s pause was all Mr. Market needed before the Averages (26656, 2933) resumed their advance.  While volume was up, it was barely so---and off a very anemic showing on Monday; breadth also improved though much less than I would have expected.  The Dow closed right on its all-time high (it traded above this level on an unsuccessful challenge) as well as the lower boundary of its very short term uptrend.  The S&P is still short of its all-time high (2942), but just slightly.  It also reestablished a very short term uptrend which will be confirmed if remains there through the close today. 

The VIX down fractionally, certainly not corresponding to a strong move up in stock prices and indicating that it may be stretched to the downside.

            More.

The long bond was up ¼ %.  Nevertheless, it still ended near the lower boundary of its very short term uptrend.  Its chart, at present, is strong; though clearly voiding its very short term uptrend would raise directional questions. 

             The dollar rose 3/8%, remaining technically strong, hitting another high in its advance since early 2018 and is forty cents away from a twenty year high.  In doing so, it experienced another gap up open, creating a second gap that needs to be filled.  However, as I mentioned yesterday, doing so would do little damage to its chart. 

            GLD was down another ¼%. Its 100 DMA is now resistance and gold appears headed for the lower boundary of its short term uptrend (seven points lower).

            Later.

Bottom line: clearly, I was wrong thinking stocks would consolidate further. However, the conditions that gave rise to that assumption haven’t changed: (1) the VIX is reflecting a very high level of investor complacency, historically a sign of lower stock prices and (2) the April 1st gap up open still needs to be closed.  Further, the 26656/1942 (all-time highs) levels should pose some, if not a lot of, resistance---meaning that I believe it reasonable to think that the indices confirming a break above those highs will take some work.

            I remain a bit confused by the price action of the other indicators that I follow. The dollar is pointing to a stronger economy/higher interest rates; though there is very little in the numbers pointing to a stronger economy.  The strong dollar explains the poor performance in gold.  However, while the long bond has been hinting at the stronger economy/higher interest rate narrative, it has yet to confirm that narrative.

            Tuesday in the charts.

    Fundamental

       Headlines

            The economic data improved yesterday: month to date retail chain store sales and (in particular) March new home sales were positive while the April Richmond Fed manufacturing index was disappointing.  Overseas the April EU flash consumer confidence index was lower than anticipated.

            Bottom line: the Market was really the story yesterday.  And, as we all know, it was a big plus, notwithstanding scaled back trade hopes, mediocre economic data and saber rattling in the Persian Gulf.  Of course, universal monetary policy mischief cures a lot of ills.

    News on Stocks in Our Portfolios


Economics

   This Week’s Data

      US

Month to date retail chain store sales grew faster than in the prior week.

The February Case Shiller home price index rose 0.3%, in line.

March new home sales were up 4.5% versus estimates of -2.5%.

The April Richmond Fed manufacturing index came in at 3 versus forecasts of 10.

            Weekly mortgage applications fell 7.3% while purchase applications were down 4.1%.

    International
                
             The April EU flash consumer confidence index was -7.9 versus expectations of -7.0.

             The February Japanese all industry index came in at -0.2 versus estimates of -0.1.

             The February Japanese leading economic indicators were 97.1 versus consensus of 97.4.

             April German business confidence was reported at 99.2 versus projections of 99.7, while consumer confidence was 10.4 versus 10.7.



                

    Other

            Trump’s Iranian oil gambit.

            US/China trade contracts 9% in first year of trade war.

            Auto sales aren’t nearly as strong as reported.

            Money supply versus demand (must read):

Fed resigned to asset bubbles.

            Who should Trump pick for the Fed’s Board of Governors?

           

What I am reading today

First, the good news in the 2019 Social Security trustees report.

            Now, the bad news.

            Increasing demand for cryptocurrency payment solutions.

            Eliminate student loans.

            Fifty years of climate change predictions.

            Controlling what you haven’t thought of.

                Is diversification for idiots?

                How many stocks should you own in your portfolio?

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