The Morning Call
5/16/19
The
Market
Technical
The Averages
(25648, 2850) had another good day, starting down big and then recovering
intraday. Volume declined though breadth
improved. Both remain above their
DMA’s. The Dow closed below both the
upper boundary of its very short term downtrend and the April 1st
gap open. However, the S&P ended
above the April 1st gap open and right on the upper boundary of its
very short term downtrend.
The VIX fell another
8 ¾ %, finishing below its 100 DMA (now support; if it remains there through
the close on Friday, it will revert to resistance) and 200 DMA (now support; if
it remains there through the close next Monday, it will revert to
resistance). However, it is still in a
solid very short term uptrend.
The long bond rose
5/8 %, closing above both MA’s, in a very short term uptrend and made a two and
a half year high.
The dollar was up a penny. Its chart remains quite positive but UUP has
two unfilled gap up opens below current price levels.
GLD
was down slightly, ending right on its 100 DMA (that stops the clock on its
upside break. If it closes above that
level today, the MA will revert to support; if below, the upside break will be
negated.)
Bottom line: the
indices were up yesterday. The Dow is
still below the upper boundary of its very short term downtrend and its April 1st
gap up open, while the S&P closed right on that boundary and above its
April 1st gap up open. That
puts the S&P at a more important technical level than the Dow. A break above the very short term uptrend
would be a positive signal while a third failure to challenge that level would
be negative.
The pin action
in the dollar continues to point at a stronger economy/higher rates; and if GLD
breaks below its 100 DMA, it would confirm that scenario. What is striking to me is TLT making a new
high, indicating a weaker economy. As
you know, I believe that the bond market is much better in anticipating events
than any others. So, I put an
explanation point on its pin action if there is solid follow through.
Wednesday in the
charts.
Fundamental
Headlines
Yesterday’s
dataflow was negative. While the May NY
Fed manufacturing index and the May housing index were better than anticipated,
April retail sales and industrial production, both primary indicators,
were below. In addition, weekly mortgage and purchase
applications declined.
Overseas,
it was the same. Q1 German and EU GDP
were up, in line. However, April Chinese
fixed asset investments, industrial production and retail sales were
disappointing as was April Japanese machine tool orders.
Trade
remains in the forefront of investors’ minds.
More
data on the impact of US tariffs on Chinese goods.
And.
And.
More
opinions on the efficacy of the tariffs.
And:
***overnight,
Trump bans US companies from doing business with Chinese 5G company, Huawei.
China calls this
the ‘nuclear option’.
In
other trade news, Trump decided to postpone the imposition of tariffs on EU,
Japanese and Canadian automakers by six months.
The good news is that he, wisely in my opinion, decided that fighting a
two front trade war was foolish and unnecessary. The bad news is that this likely means Trump thinks
that the China trade war is not apt to end anytime soon.
US
allies pulling troops out of Iraq on fears of a US/Iran confrontation.
Bottom
line: so, let’s see. Yesterday we got
really poor economic data---that is not a plus for corporate profits. Then, Trump makes a move that seems to portend
that he is prepared for the trade war with China to be an extended affair. I doubt that the auto tariffs are being
figured into current profit estimates.
However, if my assumption about them is correct, then if analysts
haven’t started factoring in a China trade standoff into their profit
forecasts, they soon will be.
None
of this is good news for economic/corporate profit growth or equity
valuations. Of course, I could be wrong
about the economic data; but I see support from the bond market. And I could be wrong about Trump’s motive in
delaying the auto tariffs---it could be just another ploy to convince China of
his seriousness. In which case, it would
support the first point of my bottom line on China trade:
(1) we can’t believe a thing that gets said
by either party 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, now that tariffs are going up, economic and corporate
profit expectations will likely start to be reduced with the concomitant impact
on equity valuations and (5) hoping for a deal, won’t make so.
Or
the only thing that matters is that all of this will likely force the Fed’s
hand to lower rates sooner rather than later; and as I continue to observe, Fed
policy has been and is the dominate factor in the Market’s performance.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
April
industrial production fell 0.5% versus estimates of it being flat.
The
May housing market index came in at 66 versus forecasts of 64.
April housing starts were up 5.7%
versus expectations of up 6.2%; building permits were flat.
The May Philadelphia Fed manufacturing
index came in at 16.6 versus consensus of 9.
Weekly jobless claims declined
12,000 versus projections of down 8,000.
International
April
Japanese PPI rose 0.3% versus estimates of up 0.2%.
The
March EU trade balance was +E22.5 billion versus forecasts of +E19.9 billion.
Other
More
on rising corporate debt.
Interest
rates and fiscal policy.
Tax
revenues under Trump
Update on big four
economic indicators.
Italy
worries rise as the prime minister threatens to push budget deficit beyond EU
limits.
In the Fed we trust, Part
1.
What
I am reading today
Young, stupid and
overconfident.
The
social security black hole is upon us.
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
No comments:
Post a Comment