The Morning Call
5/17/19
The
Market
Technical
The Averages
(25842, 2876) maintained their upward momentum though volume declined again and
breadth was mixed. Both remain above
their DMA’s. The Dow closed above the
upper boundary of its very short term downtrend (if it ends there today, that
trend will be negated) but below the April 1st gap up open. The S&P finished above the April 1st
gap open and the upper boundary of its very short term downtrend (if it closes
there today, that trend will be negated).
The VIX fell
another 6 ½ %, finishing below its 100 DMA for a second day (now support; if it
remains there through the close today, it will revert to resistance) and 200
DMA for a second day (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
declined ¼ %, but still finished above both MA’s and in a very short term
uptrend.
The dollar was up ¼ %. Its chart remains quite positive but UUP has
two unfilled gap up opens below current price levels.
GLD
dropped ¾ %, ending below its 100 DMA, reverting to resistance.
Bottom line: the
indices continued to follow through to the upside after their bounce off the
break below the April 1st gap up opens---which is exactly what the
bulls would want, i.e. fill the gap then return to the upside. Low volume and mixed breadth detract a bit
from a positive view. Nonetheless, if
they close above the upper boundaries of their very short term downtrends
today, the assumption has to be that another challenge of their all-time highs
is coming soon.
The pin action
in the dollar continues to point at a stronger economy/higher rates; and GLD confirms
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. However, it failed to follow through to the
upside yesterday---which may not be that big a deal. But it needs to happen or it will turn into a
double top.
And:
Thursday
in the charts.
Fundamental
Headlines
Yesterday’s
data was somewhat positive: the May Philly Fed manufacturing index was well
ahead of estimates and weekly jobless claims more than anticipated; however,
April housing starts (primary indicator) were below consensus.
Overseas,
the March EU trade balance was bigger than expected and the April Japanese PPI
was hotter than projected.
The
main news item of the day was the late Wednesday blacklisting of Chinese tech
giant, Huawei, preventing it from doing business with US companies. This strikes at the heart of the trade
war---unfair Chinese industrial and IP theft policies. As you might expect, I have no problem with
it; but it does represent an escalation in the trade battle, which the Chinese
were none too happy about.
***overnight,
their reaction.
In my opinion,
the only issue here is the strength of Trump’s conviction to stay the course. As I have said repeatedly, if he continues to
judge his performance as president by the level of the Market, then that
‘strength of conviction’ factor is in play.
On the other
hand, if he is willing to go to the mat with the Chinese, then economic
difficulties are going to get worse before they get better. Unless, of course, the Chinese fold, which I
believe is unlikely.
Is
a trade war with China just the opening shot?
This author may be a bit out over his skis.
The
economy heads south.
The
Atlanta Fed’s latest now forecast.
Global
air freight volume declines.
Bottom
line: while economic data over the last month has been neutral to positive, the
above links suggest that this is not going to last. The question is, how much of the slower
growth is attributable to lousy fiscal and monetary policies and how much to
the current trade skirmish? To date,
several estimates of the potential impact of the latter have been quite
sanguine. On the other hand, the anecdotal
evidence is a bit more concerning.
Whatever the effect,
a trade deal would almost surely offset any short term cyclical growth problems
that have occurred as a result of the tariff war. Judging by the current pin action, investors
seem to believe that an agreement will be reached in the near term. Given the Donald’s preoccupation with the
Dow, they have good reason for thinking that.
But
a trade deal is only good for long term secular economic growth if the Chinese reform
their industrial and IP theft policies. Otherwise,
the whole tariff exercise will have been for naught.
So, if Trump
stays the course, then the issue becomes how much additional pressure is put on
economic growth and corporate profits by as yet unknown steps that the Chinese
or Trump could take? I certainly don’t
know the answer.
This says
nothing about the impact of irresponsible fiscal and monetary policies on the
economic growth rate which, to be sure, is negative. Even if we get a quick resolution to the US/China
trade war, these drags on economic growth remain. This is not to say that I won’t raise my
economic growth estimates if the numbers continue to come in positive. It just won’t be by much.
All that said, the
above is just mental gymnastics because the most apparent factor in equity
pricing is the Market’s belief that both Trump and the Fed will allow it to
dictate their policies.
The
US naval buildup in the Persian Gulf continues.
But
the meaning is uncertain.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
International
March
EU construction output rose 6.3% versus estimates of +1.8%.
April
EU CPI was 0.7%, in line.
Other
The
irrelevance of the Fed.
What
Pompeo and Putin did and did not talk about.
What
I am reading today
How
has Danielle Steel managed to write 179 books?
At
last, FCC proposes restrictions on robocalls.
Value plus a catalyst.
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