The Morning Call
5/10/19
The
Market
Technical
The Averages (25828,
2870) had another roller coaster day, ending lower on the day but well off
intraday lows. Still both charts are
strong; and importantly, the S&P closed its April 1st gap up
open, removing its downside gravitational pull.
However, both indices are building a very short term downtrend. So, the question in my mind is, will the
Averages closing those gap up opens provide upside buoyancy or will the upper boundary
of that very short term downside provide meaningful resistance? The space between those levels (the closed
gap and the very short term downtrend) is pretty tight, so we could get some directional
information shortly when one of them is violated,
The VIX was down
2 ½%, not normal for a hugely volatile day in which the indices closed down. It suggests investor complacency isn’t dead. That said, it ended above its 100 day moving
average for a third day (reverting to
support) and its 200 day moving average for a third day (if it remains there
through the close today, it will revert to support). In addition, it is in a solid very short term
uptrend. In sum, somewhat confusing pin
action.
The long bond rose
½ %, remaining 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 down a nickel, continuing this
week’s almost stationary price action.
Its chart remains quite positive; though there is still a gap up open
below that needs to be filled.
GLD
was up ¼ %. Its chart remains broken and,
on a technical basis, gold has not fulfilled the downside objective set up by January
to April head and shoulders formation. On
the other hand, it is very near to challenging the upper the upper boundary of
its very short term downtrend. So, like
the S&P and the VIX, direction is open to question.
Bottom line: the
two key technical developments yesterday was (1) the S&P closed the April 1st
gap up open which is a plus and (2) the decline in the VIX on a big down day
which also has positive implications. If
I knew nothing about the news flow, I would be thinking that the next move is
up.
The pin action
in the dollar continues to point at a stronger economy/higher rates; and yesterday
the long bond and gold again say otherwise.
Fundamental
Headlines
Yesterday’s
stats were mixed: weekly jobless claims fell less than anticipated while March
wholesale inventories/sales were upbeat.
Overseas,
the numbers were weighed to the negative: April Chinese CPI and loan growth
were in line while PPI was hotter than projections and social spending dropped
off of a cliff.
The
US/China trade negotiations via media remained center stage. Unfortunately, it has become a farce. Wednesday night, it was reported in the
Chinese news wires that there was ‘zero chance of a deal’. That got stocks off on the wrong foot
Thursday morning. At its low, Dow was down
more than 400 points. But, Trump couldn’t
have that. So, he said that a deal was
still possible and the Xi had sent him a ‘beautiful’ letter urging both parties
to ‘work together’---at which point, drum roll please, stocks rallied. Did I say that you can’t believe anything
these clowns say?
***overnight,
no deal, tariffs rise from 10% to 25% on $200 billion in imports, Chinese vow
to retaliate, Trump still considering new 25% tariff on additional $325 billion
imports, everyone is hopeful.
Bottom line: the
farce continues. Trump and Xi are vying
for who has the biggest johnson so as to impress their own constituencies. If this was just a giant elaborate Kabuki
dance designed to demonstrate that, then now that its done, hopefully,
negotiations will resume after, perhaps, a bit more trumpeting by Trump and
Xi.
Whether it is or
not, my bottom line hasn’t changed: (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..
Update
on what the Fed is doing.
And
thinking---if we have to have a QE, this is by far a better alternative to the
present.
https://www.zerohedge.com/news/2019-05-09/fed-launches-rate-peg-instead-qe-trial-balloon-next-crisis
News on Stocks in Our Portfolios
Revenue of $4.2B (-0.5% Y/Y) misses by $50M.
C.H. Robinson Worldwide (NASDAQ:CHRW) declares $0.50/share quarterly dividend, in line with
previous.
Economics
This Week’s Data
US
March
wholesale inventories fell 0.1% versus expectations of unchanged; however,
sales jumped 2.3%---a very positive sign.
April
CPI was +0.3% versus estimates of 0.4%; core CPI was 0.1% versus 0.2%
International
March
Japanese household spending was up 0.1% versus forecasts of +0.5%; cash
earnings (income) fell 1.9% versus consensus of -0.5%.
March
UK GDP was -0.1% versus projections of 0.0%; construction output was up 3.2%
versus 4.5%; industrial output was +0.7% versus +0.1%; Q1 business investment
was +0.5% versus -0.6%.
Other
A
deep dive into the employment stats.
Did
QE work? This author says ‘yes’ but
provides no quantitative evidence as to its magnitude.
More
from my favorite optimist.
Hotel occupancy rates are increasing
YoY
It is time to
start worrying about the level of global corporate debt (remember, high levels
of debt inhibit growth).
And this
warning from the Fed.
New lawsuit could wreak havoc in the
leveraged loan market.
How much has the US/China trade war
cost us?
What
I am reading today
Lifetime medical
expenditures of retirees.
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