The Morning Call
5/8/18
The
Market
Technical
The internal strength
that the Averages exhibited on Monday quickly dissipated yesterday as they (25965,
2884) experienced a sharp decline on slightly higher volume and very poor
breadth. The Dow closed its April 1st
gap open intraday while the S&P still has a way to go (2837). But as I have observed, closing those gap up
opens does little technical damage and in no way precludes another challenge of
their all-time highs.
The VIX soared
25 ½ %, clearly torching the complacency that it had existed the prior two
weeks and was again evident in Monday’s intraday reversal.
The long bond rose
3/4 %, continuing its bounce off the fourth challenge of the lower boundary of
its very short term uptrend.
The dollar was up another two cents. Its chart remains quite positive; though
there is still a gap up open below that needs to be filled.
GLD
increased 3/8%, but its chart remains broken.
Its 100 DMA and the upper boundary of its very short term downtrend
represent overhead resistance.
Bottom line: even
though Monday’s intraday reversal didn’t presage another challenge on the
indices all-time high and Tuesday’s pin action was a bit painful, the spike in
the VIX as well as the Dow closing the April 1st gap open are probably
longer term pluses in that they are starting to correct what was an overbought,
over extended Market. We knew that the
powerful advance from December 26th had to end at some point as did the
degree of complacency exhibited in the VIX. The only question was when. So far, no technical damage has been done to
either chart; and until it is, the question is how much backing and filling
will be required before the Averages mount another challenge to their all-time
highs.
Yesterday’s performance
by the dollar, long bond and gold were likely more a function of their role as
a safety trade than anything else.
Things
are out of whack.
Tuesday
in the charts.
Fundamental
Headlines
Yesterday’s
stats were weighted to the positive: month to date retail chain store sales and
the March JOLTS (job openings) report were better than expected while the rise
in consumer credit (credit cards) was below forecasts.
Overseas,
the numbers weren’t so good: March German factory orders and the April
construction PMI were below estimates; plus the EU reduced 2019 economic growth
forecast.
US/China
trade talk concerns dominated yesterday’s news narrative, the latest input
being the comments by head US trade negotiator Lighthizer which were not
positive. That said, 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.
Thoughts
on the Trump/Xi stare down.
Go
small and go home.
***overnight,
Not
talked about so much was the escalating saber rattling between the US and
Iran. A ‘shots fired’ scenario could
turn out to be a nightmare; and having a couple of neocons (Pompeo/Bolton)
seemingly in charge of managing events doesn’t help.
Bottom
line: I have two questions: (1) will Trump raise tariffs on Friday?---which
will almost surely be a negative for the Market short term and (2) if he does,
what will Mr. Powell do?
In
the meantime, we are one tweet away from reversing Monday and Tuesday’s damage.
When
everything is coming up roses.
Update
on corporate buybacks.
News on Stocks in Our Portfolios
Emerson Electric (NYSE:EMR): Q2 GAAP EPS of $0.84
in-line.
Revenue of $4.57B (+7.5%
Y/Y) misses by $70M.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew more rapidly than in the prior week.
The
March JOLTS (job openings) report showed available jobs at 7.4 million versus
estimates of 7.2 million.
Consumer credit
was up $10.2 billion in March versus consensus of +$16.0 billion.
Weekly mortgage
applications rose 2.7% while purchase applications were up 4.2%.
International
The
April Chinese trade balance was +$13.8 billion versus expectations of +$35
billion---a sharp drop in exports was the primary cause.
March
German industrial production advanced 0.5% versus projections of -0.5%.
Other
Fed
warns of risky corporate debt levels.
Italy
has risky government debt levels.
Recovery in Europe
(Germany)?
Will the yuan become a
reserve currency?
What I am reading today
Death
by loneliness.
On
the other hand.
More
‘make work’ from the government bureaucrats.
Some
interesting facts about student loans.
Quote of the day.
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