The Morning Call
5/22/19
The
Market
Technical
The Averages (25877,
2864) rebounded yesterday on weak volume but improved breadth. However, their charts are strong as (1) both
remain above their DMA’s, (2) both negated their very short term downtrends,
(3) the S&P again ended above the April 1st gap up open and (4)
the S&P’s 100 DMA is crossing above its 200 DMA---a technical plus.
The assumption
has to be that the indices will challenge their all-time highs. The caveat remains that a failure to do so
would set that level up as a double top. What I am waiting for now is the level of the
next high. Yesterday’s pin action starts
a move back towards last Thursday’s highs (~26101/2892). Failure to trade above that level would be a
sign of that double top.
The
IPO market is not overheated.
The VIX was down
8 ½ %, falling back from its 100 DMA (now resistance) and remaining below its
200 DMA (now resistance). While it is
still in a solid very short term uptrend, the MA’s pose stronger resistance than
the very short term uptrend does support.
The long bond declined
fractionally, but finished above both MA’s, in a very short term uptrend though
it is still slightly below its newly set two year high.
The dollar was up, ending above a three year
high and is now 14 cents from a ten year high.
So, the chart remains quite positive though (1) that ten year high
should offer strong resistance and (2) UUP has two unfilled gap up opens below
current price levels.
GLD
dropped ¼ %. Its chart remains
broken---its 100 DMA is resistance; plus, it still hasn’t fulfilled the downside
objective set by that recent head and shoulders formation.
Bottom line: with
yesterday’s rally, I am now watching the price level that the Averages again
reverse to the downside. A close above
last Thursday’s close would be an encouraging sign that a challenge of the
all-time highs is coming next. Failure
to do so would raise the risk that a double top has been made.
UUP and GLD were
back pointing to a stronger economy/higher rates. Despite a down day in the long bond, its pin
action continues to suggest a weaker economy.
Tuesday
in the charts.
Fundamental
Headlines
Yesterday’s
data releases were negative: month to date retail chain store sales slowed and April
existing home sales were very disappointing.
Overseas,
the May EU flash consumer confidence was down but not as much as expected.
At
the risk of sounding like a broken record, trade remains center stage with the
latest act being Trump’s (latest attempt to rescue the Market) delay of the restrictions
(he imposed the prior day) on doing business with Chinese tech darling, Huawei.
Unfortunately, the entire narrative on this
issue has been so muddied by the obvious political/Market oriented nature of the
administration’s comments that we can’t really be sure of the true state of the
current trade talks with China.
A second farm bill could cost up to
$20 billion.
https://www.zerohedge.com/news/2019-05-21/second-white-house-farm-bailout-could-cost-much-20-billion
***overnight,
Washington considering blacklisting more Chinese companies
And UK’s
largest cell phone company drops Huawei phones from 5G launch.
However,
there are other factors to be considered, like
Monetary
policy. This must read from Jim Grant.
And
fiscal policy. What fiscal restraint?
Bottom
line: while the trend in the economic numbers has improved somewhat recently, there
is still not enough evidence to support an upward revision in growth forecasts;
and even if they were to get better, I don’t see how it could be that much
better in the midst of a trade war, irresponsible fiscal policy and softening
global growth. In other words, with
valuations near all-time highs, how can they get higher in absence of an
increase in the growth rate of corporate profits?
Like the Raven, I
quote the answer most days: the most
apparent factor in equity pricing is the Market’s belief that both Trump and
the Fed will allow it to dictate their policies.
Earnings
expectations for 2019.
News on Stocks in Our Portfolios
Revenue of $3.21B (+5.2%
Y/Y) beats by $10M.
Qualcomm loses landmark antitrust
suit.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew at a slower pace than in the prior week.
April
existing home sales fell 0.4% versus expectations of up 2.7%.
Weekly
mortgage applications rose 2.4% but purchase applications declined 2.0%.
International
May
EU flash consumer confidence was -6.5 versus estimates of -7.7.
April UK PPI was
up 1.1% versus forecasts of +1.3%; CPI was up 0.6% versus +0.7%; public sector
borrowing (budget deficit) was L4.9 billion versus L5.1 billion.
April Japanese
trade balance was Y60.4 billion versus projections of Y203.2 billion; March
machinery orders rose 3.8% versus an anticipated decline of 0.7%.
Other
A
closer look at the manufacturing sector of the economy.
US
business cycle risk report.
Latest
on Brexit.
Tensions
ease with Iran.
What
I am reading today
The three phases of an investor’s
life.
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for Survival’s website (http://investingforsurvival.com/home)
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