The Morning Call
6/19/19
The
Market
Technical
The Averages (26465,
2917) had a monster up day, both indices
closing above the minor resistance but did so on gap up opens---which will need
to be filled. Both ended above their 100
and 200 DMA’s (now support).
https://www.reuters.com/article/us-global-markets/draghi-shock-hits-euro-boosts-stocks-idUSKCN1TJ01U
While volume rose,
it was barely so. Meaning that volume
remained extremely low. Breadth improved.
VIX was down 1½%. However, the drop was quite tame (not usual)
given a 300+ up Dow day. It ended right
on its 100 DMA (now support) but is still below its 200 DMA (now resistance).
TLT rose ½ % on
volume, closing above both MA’s (now support), in a very short term uptrend and
is now sixty cents away from its twenty year high.
The dollar rose four
cents on volume, remaining in a short term uptrend and above both moving averages (now support). However, it still has that gap up open lower
down---which, as you know, I expect will need to be filled.
GLD increased ½ %
on volume, finishing in a short term uptrend, above both MA’s (now support) and
remains near the upper boundary of its intermediate term trading range.
Bottom line: the
S&P blew through the minor resistance level joining the DJIA in an advance
on their all-time highs. Barring a
dramatic reversal today, my assumption is that they are now on track to
challenge their all-time highs, which, given history, is most likley to be
successful. It is still 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 is signalling extreme complacency.
Tuesday in the charts.
Using a moving
average versus a momentum model for investment decisions.
Fundamental
Headlines
Yesterday’s stats
were mixed---housing starts and building permits above expectations while month
to date retail chain store sales drifted lower.
Of course, housing starts are a primary indicator so net, net the news
was positive.
Overseas,
the April EU trade balance was much higher than anticipated; May CPI was slightly
below consensus; and the June economic sentiment index was abysmal.
Nothing
here to warrant a more positive view of the economy. Indeed, the trend has been neutral at best.
But yesterday,
the numbers weren’t the most important headline as
(1)
Draghi/the ECB stated that if European economic
conditions didn’t start to improve shortly, he/it would return to QE/rate
cuts. That was all the Markets needed to
get jiggy, heightening investor anticipation of dovish mewing from the Fed
today.
Monetary wars.
Second guessing the Fed.
And:
(2)
Trump added to the euphoria, tweeting that he had
talked with Xi, that they will meet at the G20 and that trade negotiations will
resume.
Apple plans to start moving iPhone assemble out of China.
Bottom line: if
the US and China can end their trade war, that would be, at a minimum, a short
term cyclical plus if trade levels just return to their prior levels. However, an agreement that doesn’t correct
Chinese cheating on industrial policy/IP theft would do little to improve the
long term secular economic growth rate of the US. My opinion is that the Chinese don’t have
sufficient reason to make a deal, at least, before the 2020 elections---which
means either Trump folds or there is no deal.
If stock prices weren’t at all-time highs, Trump folding could be a short
term Market plus. But they are.
The universe is
tip toeing through the tulips over Draghi’s reaffirmation of the central bank ‘put’,
expecting that the Fed will follow suit today. And that has been the playbook for the last
decade with stock prices advancing and valuations rising even faster driven by global
QE. But, but, but, the other part of that
scenario has been the gradual improvement in the global economy, however paltry
it may have been.
To be sure, at the
moment, my forecast still doesn’t include a recession---which means to me that
stock prices can continue to rise on easy money as long as we/the globe avoids
recession.
However, if I understand
the ECB/Draghi’s statement, it/he is worried about (1) the recent dataflow and (2) the pin action in
the bond, dollar and gold market suggest a weakening economy. Of course, it/he could be dead wrong. On the
other hand, it/he may be exactly right in altering ECB monetary policy. If the latter, then investors may be facing a
scenario that they have not had to deal with for the last decade---central bank
easing because of a recession.
Certainly, we need
more data before concluding that a recession is in our future; and, as I repeatedly
note, that is not my forecast right now.
But the evidence continues to grow.
This
is a time for caution.
Update on dividends
in the second quarter.
Low volatility indices
outperform the Averages.
Investors are the
most bearish since the financial crisis---which is probably why the Market is
going up.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month
to date retail chain store sales were down for a second week in a row.
Weekly
mortgage applications declined 3.4% while purchase applications were down 3.5%.
International
The
May Japanese trade deficit was Y967.1 billion versus estimates of Y979.2
billion.
The
May German PPI was -0.1% versus consensus of +0.2%.
The
May UK CPI was +0.2%, in line; the PPI was +0.1% versus +0.2%; the June industrial
orders index was -15 versus -12.
April
EU construction output YoY was up 3.9%
versus expectations of up 1.9%.
Other
Drowning
in debt or a government shutdown?
Bad
loans still too high in EU banks.
Two
NYU professors show how passive investing can outperform active investing.
Update
on potential Italian debt crisis.
What
I am reading today
Waterloo. The victory that set the future of the
European continent.
Conquering negativity.
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