The Morning Call
6/21/19
The
Market
Technical
The Averages (26753,
2954) did another moonshot yesterday, pushing through their all-time highs
(26656, 2942)---which are also the upper boundaries of their short term trading
ranges (if they remain there through the close on Monday, the trends will rest
to up). Both ended above their 100 and
200 DMA’s (now support). However, both
indices made a gap up open on Tuesday---which will need to be filled. Amazingly, volume was again to the downside though
breadth improved.
VIX was up 3%, making yesterday another of the
many schizophrenic sessions of late, i.e. it rose on a big stock price day when
it would normally be down. However, this
pin action likely reflects investors scrambling for cheap protection in a
soaring Market. It finished below its
100 DMA for a second day (now support; if it remains there through the close today,
it will revert to resistance) and is now in a very short term downtrend.
TLT rose ¼ % on big
volume, closing above both MA’s (now support), in a very short term uptrend,
has made a new higher high in the trend off the 11/19 low and is near its
twenty year high.
The only thing
wrong with this analysis is that the bond markets are discounting future economic
activity not whether the Fed will or will not lower rates.
And.
The dollar fell another
5/8 %, also on volume. But it remained
in a short term uptrend and above both moving
averages (now support). It closed
last week’s gap up open (good news) and but made a gap down open---which needs
to be filled (also good news).
GLD rocketed up 2 ½
%, also on big volume, finishing in a short term uptrend, above both MA’s (now
support) and is sixty cents away from the upper boundary of its intermediate
term trading range. However, in the
process, it created a major gap up open---which needs to be filled.
Bottom line:
the Averages are now is the process of challenging their all-time highs
which are also the upper boundaries of their short term trading ranges. If they remain there though the close on
Monday, then the trend will reset to up.
Further, as I have previously noted that according to the technical saw
that there are no triple tops, they will most likely to be successful.
That said, on a very short term basis, they still need
to close Tuesday’s gap up opens. Longer
term, it is remains disconcerting that volume is low (versus high volume in
bonds the dollar and gold which all pointing to recession/or the need for a
safety trade), relatively weak breadth and a VIX that has been acting
unconventionally for the last couple of weeks.
Thursday in the charts.
Stay out of the
way of today’s quad witching.
Fundamental
Headlines
Yesterday’s
economic data was disappointing: weekly jobless claims fell more than expected (which
is good) while the Q1 trade deficit, May leading economic indicators and the June
Philly Fed manufacturing index were below estimates.
Another model’s
prediction of the probability of a recession.
Overseas,
the April Japanese all activity index was better than anticipated, the May UK
retail sales were in line (though down .5%) and June EU consumer confidence was
below estimates.
Aside from the pin
action in the Markets, the headlines of the day were:
(1)
positive rhetoric on the US/China trade talks
China’s US Treasury holdings are not a
viable trade war weapon.
(2)
the downing of a US drone by Iran which clearly rachets
up the heat following the torpedoing of two tankers.
Russia weighs in.
***overnight, Trump calls off strike.
Bottom line: the economic data
is not improving; and while that doesn’t mean recession, it is not as healthy
as the Fed assumes---and the bond, dollar and gold markets are saying exactly
that. To be sure, those investors could
be wrong; but my inclination is to believe a market of savvy investors over a
bunch of academics with a flawed economic model.
I have real doubts about the
likelihood of much progress in the renewed US/China trade talks. 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 either Trump folds
or there is no deal.
In the short term, the wild card
is the US/Iran standoff. The problem
with this situation is that global oil supplies could be negatively
impacted. That said, since the Chinese
are among the biggest buyers of Iranian oil, Iran has little to gain by closing
the Straits of Hormuz. That gives me
hope that this situation will resolve itself without any major military
confrontation or oil supply disruption.
Of course, the stock market/Fed
co-dependency is the major factor in equity prices; and the continued market
advance in the face of lousy economic, trade and Middle East headlines is a testament
to that. Until that paradigm changes, the
trend in stock prices will likely remain to the upside.
Be
careful.
News on Stocks in Our Portfolios
Medtronic (NYSE:MDT) declares $0.54/share quarterly dividend, 8% increase from
prior dividend of $0.50.
Economics
This Week’s Data
US
The
May leading economic indicators were flat versus forecasts of +0.1%
International
June
EU consumer confidence was -7.2 versus estimates of -6.5; the June flash composite
PMI was 52.1 versus 52.5; the manufacturing PMI 45.4 versus 44.5; the services
PMI 55.6 versus 55.4; the German flash composite PMI was 52.1 versus 51.8; the
manufacturing PMI47.8 versus 48.0; the services PMI 53.4 versus 52.9..
May
Japanese CPI was 0.0% versus consensus of +0.2%; ex autos, it was +0.5% versus
0.6%; the June flash manufacturing PMI was 49.5 versus 50.0.
Other
What
I am reading today
How
to become a federal criminal.
Mueller’s scorched earth policy.
Quote of the day.
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