The Morning Call
4/23/19
The
Market
Technical
The Averages (26511,
2907) were mixed yesterday (Dow down, S&P up) on anemic volume and poor
breadth. The Dow closed right on the
lower boundary of its very short term uptrend; while the S&P voided its
very short term uptrend last Thursday. As
you know, I think more downward pressure will come from needed filling of the
big April 1st gaps up opens.
Last week’s pin
action suggests that stocks are moving into some sort of consolidation phase. I don’t think that this bad news. Indeed, as I said before, I think that the aforementioned
April 1st gaps need to be closed and as is the VIX rebound from
stretched levels on the downside. I see
no reason why those can’t occur and still leave the indices in a great position
to challenge their all-time highs.
The long bond was
down ½%, again nearing the lower boundary of its very short term uptrend. Its chart remains strong; though clearly voiding
its very short term uptrend would raise directional questions.
The dollar fell, but it remains technically
strong. As I mentioned yesterday, it
does have a gap up open that needs to be filled. However, doing so would do little damage to
its chart.
GLD
was unchanged but its chart has broken down.
Its 100 DMA has reverted to resistance; and the completed head and shoulders
pattern has a downside price objective seven points lower.
Bottom
line: taking the pin action in the Averages and the VIX together, it seems
reasonable to me to see some very short term weakness in stock prices. However, I still believe that the indices
will challenge their all-time highs.
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. That
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.
The
split between retail and institutional investors widens.
Monday
in the charts.
Fundamental
Headlines
Yesterday’s
data did not make for great reading. The
March Chicago Fed national activity index as well as March existing home sales
were disappointments. Nothing overseas.
The
main headline of the day was the US suspending waivers to countries buying
Iranian oil, meaning Iranian oil sales, a significant source of that country’s
income, are about to decline meaningfully.
In terms of the economic affect on oil prices, the Saudi’s have indicated
that they will increase production to offset any upward price pressure resulting
from the potential decline in Iranian supplies.
However, there could
be disturbing political consequences, i.e. Iran has threatened to close the
Strait of Hormuz, which is a major transit choke point for Middle East
oil. Experts, that I respect, give low odds of that
occurring because the rest of the world would likely turn against Iran. So, it would weaken their negotiating position. However, Iran could strike at US naval forces
in the area; and who knows what the end game would be in that scenario.
Bottom
line: yesterday’s economic data certainly didn’t contribute to the ‘stronger
economy’ narrative. Further, a conflict
in the Middle East won’t help global growth---though I wouldn’t presume to put post
odds on that happening. The one positive
constant is dovish global central banks, which I believe will remain the most
important variable in equity valuations.
Update
on earnings season.
News on Stocks in Our Portfolios
Revenue of $2.8B (+1.4%
Y/Y) misses by $80M.
Economics
This Week’s Data
US
March
existing home sales declined 4.9% versus expectations of down 3.8%.
International
Other
Not
as many jobs have gone overseas as you might think.
Thoughts
on the next recession.
The
Fed is in worse shape than the economy.
What
I am reading today
Are humans fit for space
travel?
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