The Morning Call
5/23/19
The
Market
Technical
Lately, the
Averages (25776, 2856) have been hopping around like Bugs Bunny on crack. Yesterday, they were down on weak volume and
mixed breadth. However, their charts are
strong as (1) both remain above their DMA’s, (2) both negated their very short
term downtrends, (3) the S&P again ended above the April 1st gap
up open and (4) the S&P’s 100 DMA is crossing above its 200 DMA---a technical
plus.
Yesterday’s
retreat set Tuesday’s high as a lower high.
It calls into question (but doesn’t negate) the assumption that the
indices will challenge their all-time highs.
If the indices follow through to the downside and make a lower low, then
it would negate that assumption and raise the odds that a double top has been
made---a technical minus.
The VIX was down
1 ¼ %, unusual on a down Market day which is a positive for coming equity pin
action. It is below both MA’s but in a
solid very short term uptrend. However,
yesterday’s pin action and well as the resistance posed by both MA are a
stronger plus for the Market than the support offer by the very short term
uptrend.
The long bond was
up ½ %, finishing above both MA’s, in a very short term uptrend and at a new
two year high.
The dollar was up, again ending above a three
year high and is now 12 cents from a ten year high. So, the chart remains quite positive though
(1) that ten year high should offer strong resistance and (2) UUP has two
unfilled gap up opens below current price levels.
GLD
dropped slightly. Its chart remains
broken---its 100 DMA is resistance; plus, it still hasn’t fulfilled the
downside objective set by that recent head and shoulders formation.
Bottom line: yesterday’s
decline sets the Average up to reestablish a very short term downtrend and to raise
the prospect of a double top. Further
downside that would create a lower low would increase the likelihood of that being
case. That said, yesterday’s VIX performance
indicates a lack of concern among investors, meaning potentially higher equity
prices. So, I think the technical
picture very much in flux.
UUP and GLD were
back pointing to a stronger economy/higher rates while TLT suggested otherwise.
Wednesday in the
charts.
Fundamental
Headlines
Only
single datapoint yesterday: while weekly mortgage applications rose, the more
important purchase applications declined.
Overseas,
April UK PPI, CPI and public sector borrowing were below expectations. The April Japanese trade balance declined
significantly; on the other hand, March machinery orders were very strong.
For a change, trade didn’t
dominate the headlines. Yesterday, it
was the release of
the minutes of the last FOMC
meeting. As always parsing the language
requires a Rosetta stone; but here are my interpretation of the high points:
(1) while inflation is below target at present, the Fed expects it to rise in
the next two to three quarters, (2) in
that period, it will remain ‘patient’ even if inflation rises above target---in
other words, no rate hikes for the next six to nine months, (3) however, if inflation
doesn’t rise in that time period, the Fed will review the need for a possible rate
cut.
Counterpoint
from BofA.
Nonetheless, there was
more threats from China:
China
preparing for ‘a people’s war’.
Offers
five year tax break for tech companies.
***overnight,
Toshiba joins Huawei blockade.
Along with others.
And this bit of
good news. In a meeting with Pelosi and
Schumer, Trump said either stop the investigations or no infrastructure
spending. Guess which one the dems will
choose? I have been clear about my
thoughts on infrastructure spending---they can be a plus when the fiscal budget
is not stretched. Not so much when the
US is running a record deficit at a time of a record national debt level. I will take fiscal responsibility anyway I can
get it.
Bottom line: the
questions are (1) if or when will
investors start to discount no trade deal for an extended period of time, (2) if they do, how long will it take Trump
and/or the Fed to react?
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.
I will continue to take
advantage of current lofty valuations to Sell Half of any stock in our
Portfolios that trades into its Sell Half Range.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Weekly
jobless claims rose 1,000 versus expectations of up 4,000.
International
The
Japanese flash manufacturing PMI was 49.6 (below 50 means contraction) versus
estimates of 50.5.
Q1
German GDP grew 0.4%, in line.
The
May EU flash manufacturing PMI came in at 47.7 versus forecasts of 48.1; the
services PMI was 52.5 versus 53.0; the composite PMI was 51.6 versus 51.7.
Other
Government
spending and economic growth.
Slight
uptick in architectural billings in April.
We
won’t know how much risk the shadow banks pose until after the next financial
crisis.
Latest
on Brexit.
What
I am reading today
America’s
soft power.
Financial pornography.
Survivorship bias in the art world.
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for Survival’s website (http://investingforsurvival.com/home)
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