The Morning Call
6/28/19
The
Market
Technical
The Averages (26526,
2924) were mixed (Dow down, S&P up) 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 down again yesterday) and the failure of other major
indices to make new highs.
Small caps lagging
Breadth is
weakening.
VIX fell 2½%, remaining between its 100 DMA on
the downside and the upper boundary of its very short term downtrend on the
upside. A break of one of these levels should
provide directional information.
TLT was up 3/4 %,
closing above both MA’s (now support), in a very short term uptrend and within
forty cents of 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
bond rally continues
The final
recessionary shoe has fallen.
The dollar was unchanged,
finishing below its 100 DMA (now resistance) but in a short term uptrend, above
its 200 DMA (now support) and still needs to close last Thursday’s gap down
open.
GLD declined ten
cents but ended above the upper boundary of its intermediate term trading range
for a fourth day, resetting 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.
Are stocks already in a bear market.
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.
Thursday
in the charts.
How
a technician views this weekend’s US/Chinese trade summit.
Does
trend following work?
Fundamental
Headlines
Yesterday’s economic
data releases were mixed: May pending home sales and final Q1 corporate profits
were better than expected; final Q1 GDP growth was in line; and weekly jobless
claims, final Q1 PCE prices and the June Kansas City Fed manufacturing index
disappointed.
The de-anchoring
of inflationary expectations.
The
‘new normal’ isn’t new anymore.
Overseas, the numbers
were also mixed: May Japanese retail sales and YoY Chinese industrial profits were
above consensus; June EU consumer confidence was in line: June EU business
confidence, economic sentiment and industrial sentiment were below estimates.
Investor
attention was understandably focused on the Trump/Xi meeting this weekend to
discuss trade. Unfortunately, the
outcome looks very much in question. As
noted in the link above, this is one of those binary events: if it appears
progress has been made then investors will go hopping down the bunny trail, if
not, not.
The current battle
lines going into Saturday’s meeting between Trump and Xi.
Kudlow warns of
new tariffs.
https://www.zerohedge.com/news/2019-06-27/stocks-stumble-after-kudlow-warns-additional-china-tariffs
Food shortages in
China increase US leverage.
The main headline was
the Fed’s announcement that the major banks had passed the second phase of
their stress test which opens the way for them to increase their dividends and
pursue additional stock buybacks---which they did immediately. More importantly, it signals that the banks are
in better shape to handle a financial crisis than they were in 2009. That said, Sheila Bair (who is my all-time
favorite bureaucrat) isn’t getting jiggy.
Under the category
of beating a dead horse, I include this latest shot at failed Fed policy.
OK, two
shots. The Fed has always been, is and
will forever be behind the curve.
Bottom line: the economic data continues to deteriorate. Another month of this and I will have to consider
lowering my growth forecast. However,
even if I do, I don’t expect any kind of 2009 like decline. That said, any slowdown will likely have a
negative impact on corporate profits. Again,
probably nothing disastrous. But that
would make current valuations even more extreme.
That, of course, is a long term
consideration. Short term, the Market
has to digest the outcome of this weekend’s US/Chinese trade talks---which as I
opined above, seems like a binary event that will likely have a binary impact
on the Markets.
That brings me back to the longer
term. Given the Market/Fed co-dependency,
any significant Market move, whichever direction, will likely have an effect on
Fed monetary. If the Market spikes, the odds of any rates cuts go down. If it plunges, then I would expect a cut in
July, maybe as much as fifty basis point if the Market really tanks.
So, assuming the stock market/Fed
co-dependency remains in place, I expect the Market to go up whatever happens in
Osaka, i.e. if equity prices jump on a trade deal, the Fed won’t get in the
way; if they decline, it will likely cut rates.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
May
pending home sales rose 1.1% versus estimates of +1.0%.
The
June Kansas City Fed manufacturing index came in at 0 versus a reading of 4 in
May.
The
May PCE price index was up 0.2%, in line; core PCE was up 0.2%, also in line.
May
personal income rose 0.5% versus projections of +0.3%; personal spending was
+0.4%, in line.
International
May
Japanese CPI was reported at 1.1% versus forecasts of 1.3%; core CPI was 0.9&,
in line; industrial production was up 2.3% versus 0.7%; construction orders
were -16.0% versus +15.1%; housing starts were down 8.7% versus -4.3%.
Q1
UK GDP growth was up 0.5%, in line; business investment was +0,4% versus +0.5%.
June
EU CPI was +1.2%, in line while core CPI was +1.1% versus +1.0%.
Other
What
I am reading today
The
difficult art of doing less.
Compounding gone wild.
Report
blames broken global drug control regime epidemic of abuse and death.
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