The Morning Call
5/15/19
The
Market
Technical
The Averages (25532,
2834) recovered some of Monday’s losses but on lower volume and mixed breadth (neither
of which is a plus). In addition, both
rose to (1) touch the upper boundaries of their very short term downtrends and (2)
trade above the levels created by their April 1st gap up opens and then
fell back below both. On a positive
note, the Dow ended above both DMA’s, negating Monday’s break.
The VIX fell 11 ½
%, but remained above both its 100 DMA (I am reinstating it as support and its 200 DMA for a second day (if
it remains there through the close on Thursday, it will revert to support). It is still in a solid very short term uptrend.
The long bond was
off ¼ %, but still finished 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 rose ¼ %, showing a little life
after a week of near comatose pin action.
Its chart remains quite positive.
Unfortunately, it made a new gap up open to go with the April 15th
gap up open below that still needs to be filled.
GLD
was down slightly, remaining above the upper boundary of its very short term
downtrend for a second day, negating that trend and its 100 DMA for a second
day (if it remains there through the close today, it will revert to support). If it holds that level, then the chart would
flip from broken to positive.
Unfortunately, GLD had a gap up open which needs to be filled. If that occurs anytime soon, then yesterday’s
upbeat pin action will be for naught.
Bottom line: the
indices were up yesterday but on lower volume and weak breadth. In addition, they failed a challenge of the
upper boundaries of their very short term downtrends for a second time and
couldn’t close above the April 1st gap up opens. So, they have unsuccessfully
tested resistance a second time. Now
will they challenge support (100 and 200 DMA’s)?
The pin action
in the dollar continues to point at a stronger economy/higher rates; and yesterday
the long bond and gold followed suit. However,
their recent pin action indicate that they may be acting as safety trades.
Tuesday
in the charts.
Fundamental
Headlines
Yesterday’s
stats were weighed to the positive: month to date retail chain store sales were
unchanged from the prior week, the April small business optimism index was
better than expected while both import and export prices in April were below
estimates (good news for consumers and Trump, more confusion for the Fed).
Overseas,
one datapoint: March EU industrial production declined but in line with
forecasts.
Trade
remains front and center in the headlines.
The day began with Trump characterizing the US/China dispute as a ‘squabble’
and that negotiations will be successful.
But
you wouldn’t believe it judging by the latest out of China.
***overnight.
Unfortunately,
not only can’t we believe anything the politicians say but also there is little
consensus on why there is a trade war in the first place and what impact it
will have on each country’s and the global economies:
Here
is article from a guy that I really respect (but who I disagree with on this issue)
bemoaning the adverse consequences of a trade war without addressing why there
is one (Chinese industrial and IP theft policies) or offering a better solution
than tariffs.
China
has more to lose in a trade was than the US.
But
US farmers are definitely being impacted negatively.
This
is a must read article on the Fed’s misplaced inflation objective.
Bottom
line: certainly, the outcome of the
US/China trade negotiations will impact both economies with ancillary effect on
global growth and US corporate profits.
The problem, as I have pointed out, is that there is no agreement about
the worthiness of Trump’s stated objectives; there is not even agreement about
how serious he is about attaining those objectives; there is no agreement about
the economic impact of no agreement; and yet, investors hang on every headline.
That suggests
caution to me. In support of that I repeat three questions and four statements:
(1) what is Trump going to do if the power
of the tweet is gone-- [in my opinion, yesterday’s pin action seemed a
marginal response to Trump’s family ‘squabble’ and ‘negotiations will be
successful’ comments], (2) how far down Trump
will let the Market fall before he caves?
(3) how far down the Fed will let the Market fall before it lowers
rates?
(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.
The
latest from Jeff Gundlach.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Weekly
mortgage and purchase applications fell 0.6%.
April
retail sales declined 0.2% versus expectations of +0.2%; ex autos, they were up
0.1% versus estimates of up 0.7%.
The
May NY Fed manufacturing report came in at 17.8 versus forecasts of 8.5.
International
April
Chinese fixed asset investments grew 6.1% versus consensus of 6.4%; industrial
production was up 5.4% versus 6.5% and retail sales were +7.2% versus 8.6%.
Q1
German GDP advanced 0.4%, in line.
April
Japanese machine tool orders fell 33.4%, after a 28.5% decline in March.
Q1
EU (second estimate) GDP was up 0.4%, in line; employment rose 0.3%, also in
line.
Other
US
GDP expected to slow in second quarter---of course, that was what was anticipated
in the first quarter.
Total household debt now
$1 trillion above prior peak.
Latest on Brexit.
What
I am reading today
Deal with it.
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