The Morning Call
6/27/19
The
Market
Technical
The Averages (26536,
2914) drifted ever so slightly lower yesterday, continuing to work off their
overbought condition without any kind of major correction---at least, so far. They remained below their all-time highs, but,
as you know, I have suspended a directional call on the short term trend. They are above both moving averages and in
intermediate and long term uptrends.
At the moment, I am
waiting for the indices to fill last Tuesday’s gap up opens and then, see how
they trade following that. My current
assumption is that the momentum is to the upside, that those gaps will be
filled and the upward trajectory will be resumed. However, I am bothered by the
lack of volume (which was flat yesterday) and the failure of other major indices
to make new highs.
VIX fell ½%, but still ended above its 100 DMA. Intraday,
it again touched the upper boundary of its very short term downtrend and backed
off slightly.
TLT declined 5/8 %
on volume, closing above both MA’s (now support), in a very short term uptrend
and remains near its twenty year high. As
I noted previously, that high represents major resistance; so, I expect more
backing and filling before another attempt is made to break above it---if
indeed there is such an attempt.
The dollar was up
two cents. It finished below its 100 DMA
(now resistance) but in a short term uptrend, above its 200 DMA (now support)
and still needs to close Thursday’s gap down open.
GLD declined 1%
but ended above the upper boundary of its intermediate term trading range for a
third day (if it remains there through the close today, it will reset to an
uptrend), in a short term uptrend and above both MA’s (now support). However, there is a major gap up open lower
down---which needs to be filled.
Bottom line: the
Averages continued to consolidate after the big run since the first of
June. They got very overbought, so that
pin action isn’t surprising. In fact, it
is a plus that the recent backing and filling has been so tame. Still more is needed to close those gap up
opens lower down. Nonetheless, I
continue to believe that momentum remains to the upside; though clearly, that
call is less certain now.
It is remains disconcerting that volume is low (versus
high volume in bonds, the dollar and gold which are pointing to recession/or
the need for a safety trade), breadth is weakening, other indices have failed
to confirm Monday’s breakout of the Dow/S&P and the VIX has been acting unconventionally for the last
couple of weeks.
Wednesday in the
charts.
Fundamental
Headlines
Yesterday’s stats
were mixed: weekly mortgage applications were up but purchase applications were
down, May durable goods orders were disappointing but ex transportation, they were
good, May wholesale inventories were up less than expected but sales were up
even less. The only definitive number
was the May trade deficit which was larger than anticipated.
Overseas, June
German consumer confidence was slightly below estimates.
There
were multiple news stories on the three major situations impacting the Market
yesterday. None of them particularly
significant.
(1)
the most absurd one was the quote from Mnuchin that
the US/China trade deal ‘was’ 90% done [we already knew that] which was
initially reported as ‘is’ done.
China exposed in multiyear hacking of US
technology companies.
***overnight, China sets pre-conditions on
resuming talks. Not to play the cynic;
but could this the ‘face saving’ move needed to return to the original
agreement, i.e. Trump meets their demands because they have already secretly
agreed to the move forward with a deal as it had already been negotiated? That said, on the surface, this looks like an
escalation of the trade dispute and fits my thinking that the Chinese have no
incentive to do a deal.
(2)
maximum pressure on Iran could backfire.
(3 ) the Fed: John Hussman addresses the
Market/Fed co-dependency.
The Fed’s hypocrite-ic oath.
Libor rates now inverted---and that is not a
harbinger of good things to come.
Bottom line: the economic data is not improving. The question is will it show up in second
quarter earnings---which are about to begin being reported (first quarter
profits were less bad than forecast. See
below).
We will know more about the
US/Chinese trade dispute by this coming weekend. Indeed, we may know more about it today as we
await Trump’s response to new Chinese terms.
As you know, I see no incentive for the Chinese to comply with US
demands for reforms in their industrial/IP theft policies until the pain is
excruciating and maybe not even then---which means in the short term, Trump
either folds or there is no deal.
Of course, the stock market/Fed
co-dependency is the major factor in equity prices. Until that paradigm changes, the trend in
stock prices will likely remain to the upside.
If you didn’t read the above article by John Hussman, he addresses how
that link could be broken.
Is value investing
about to make a comeback?
News on Stocks in Our Portfolios
Revenue of $980.4M (+15.9%
Y/Y) beats by $1.46M.
Revenue of $11.1B (+3.8%
Y/Y) beats by $70M.
Economics
This Week’s Data
US
The
final Q1 GDP growth rate was 3.1%, in line;
corporate profits were -3.1% versus -3.5%; PCE prices up 0.5% versus
0.4%; core PCE prices up 1.2% versus 1.0%.
International
June
Japanese retail sales were up 0.3% versus expectations of -0.6%.
YoY
Chinese industrial profits fell 2.3% versus estimates of -3.8%.
June
EU business confidence was .17 versus forecasts of .23; consumer confidence was
-7.2, in line; economic sentiment was 103.3 versus 104.6; industrial sentiment
was -5.6 versus -3.1.
Other
Chemical
activity barometer flat in June.
Thoughts
on a wealth tax.
The
snowflake economy.
The
latest on Brexit.
What
I am reading today
Quote of the day.
Falling CO2 in the US.
Another regulatory winner from San
Francisco.
The unsatisfying certitude of uncertainty.
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