The Morning Call
5/9/19
The
Market
Technical
The Averages (25967,
2879) made a stab at a comeback intraday but the S&P finished down with the
Dow up fractionally. Still both charts are
strong; the only real very short term problem is the need for the S&P to
close its April 1st gap open (2837). But as I have observed, closing that gap up
open does little technical damage and in no way precludes another challenge of its
all-time high.
The VIX up only slightly. Still, it ended above its 100 day moving
average for a second day (if it stays there through the close today, it will
revert to support) and its 200 day moving average for a second day (if it
remains there through the close on Friday, it will revert to support). In addition, it is in a solid very short term
uptrend. All of this indicates that
investors have finally decided that there are risks in this Market.
The long bond fell
½ %, but remains above both MA’s, in a very short term uptrend and has made a higher high bouncing off the
lower boundary of that uptrend.
The dollar was up another one cent. Its chart remains quite positive; though
there is still a gap up open below that needs to be filled.
GLD
declined ¼ %, but its chart remains broken.
Its 100 DMA and the upper boundary of its very short term downtrend
represent overhead resistance.
Bottom line: the
fact that the indices couldn’t hold on to their intraday gains suggests investor
unease; though their very limited follow through to the Tuesday’s big down day
indicates that it is not that great. The
issue at this moment is how much backing and filling will be required before they
mount another challenge to their all-time highs. In the meantime, the best thing that could
occur, technically speaking, is for the S&P to close that April 1st
gap up open.
The pin action
in the dollar continues to point at a stronger economy/higher rates; and yesterday
the long bond and gold followed suit.
Wednesday
in the charts.
When
does Market timing work?
Fundamental
Headlines
There
was one lone datapoint in the US yesterday: weekly mortgage and purchase
applications were up.
Overseas,
the news was mixed: the April Chinese trade balance dropped off a cliff while
March German industrial production was surprisingly strong.
Trade
and Iran remained the lead headlines.
(1)
US/China trade. We
started the day with more happy talk from the administration. For a President that checks on the Market
hourly, how could there not have been after Tuesday’s sell off? But
the Chinese responded immediately saying that they were preparing their own list
of products on which to raise tariffs.
My conclusion
hasn’t changed: I continue to think that (1)
we can’t believe a thing that gets said by either party, especially Trump, for
public consumption, (2) no deal is better for long term US secular economic
growth than a crumby deal, but (3) short term, a crumby deal will be better for the economy than no deal, (4)
in any case, if tariffs go up on Friday, economic and corporate profit
expectations will likely start to be reduced with the concomitant impact on
equity valuations.
Don’t abandon values just to trade with China.
(2)
tensions with Iran continue to escalate.
***overnight.
Also.
But
this may be the best news of all.
Bottom
line: as Christine Jorgenson once said, ‘it won’t be long now’. The Chinese are here; so, we should have some
clarity on trade by the weekend, even if the decision is to simply keep talking. At that point, investors may be able to regain
some of their confidence in 2019 corporate profit numbers that was lost when the
latest back and forth started. Of
course, that doesn’t mean that prior estimates will change.
***overnight. Trump gives some wiggle room.
My
only observation is a well worn one---valuations are very stretched even under
a Goldilocks scenario, though that could remain so as long as the global
central banks are accommodative.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
The
March trade deficit was $50.0 billion versus estimates of $50.2 billion.
April
PPI rose 0.2%, in line; core PPI was up 0.1% versus expectations of +0.2%.
Weekly
jobless claims fell 2,000 versus consensus of down 8,000.
International
April
Chinese CPI was up 0.1%, in line; PPI was up 0.9% versus projections of up
0.6%; loan growth was flat while social spending came in at Y1350 billion
versus estimates of Y1700 billion.
Other
China
defaults hit record high.
The
Fed and inflation.
What
I am reading today
Trump’s
Middle East peace plan.
The problems with finding
and investing in the next Big Short.
Making money simple.
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