The Morning Call
7/10/19
The
Market
Technical
The Averages (26783,
2979) were mixed yesterday (Dow down, S&P up). Both remain above both MA’s and in uptrends
across all time frames. Volume was flat
and anemic; breadth was weak. Still momentum is to the upside; so, my
assumption is that they will challenge the upper boundary of their long term
uptrends (29947, 3191). Nevertheless, there are some negative: (1) short term, last
Friday’s gap up opens need to be closed and (2) long term, all the other
non-stock indices are pointing to a need for safety which is contrary to the
current pin action in stocks.
The VIX was up 1%,
but remained below both MA’s and in a very short term downtrend. So, impetus is lower. However, as I noted yesterday, it is near its
historic low, suggesting limited additional downside.
The long bond rose
five cents---now twelve cents away from the upper boundary of its short term
trading range. Importantly, a successful
challenge will reset its long term trend to up.
Nonetheless, it is above both MA’s and in a very short term uptrend. In addition, it had a gap down open on Friday
which needs to be filled---which if it happens, would start another challenge
of the upper boundary of the short term trading range. It
continues to act as a safety trade.
Italian 100 years
bonds are massively oversubscribed.
The dollar was up
two cents, ending above both MA’s and in a short term uptrend. However, it made a gap up open on Friday
which needs to be closed. I still
believe that its pin action reflects its role as a safety trade.
GLD advanced 3/8%,
continuing its strong uptrend (above both MA’s and in a short term uptrend). Still, it has made one gap up and one gap
down opens and those need to be dealt with.
That said, it continues to act as a safety trade.
Bottom line: despite
being overbought and the need to fill gap up opens from the prior week, the
Averages appear on their way to challenging the upper boundaries of their long
term uptrends.
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 equity indices have
failed to confirm the breakout of the Dow/S&P and the VIX has been acting unconventionally for the last
couple of weeks.
Tuesday in the charts.
Fundamental
Headlines
Two minor
datapoints were released yesterday: month to date retail chain store sales fell
less than in the prior week while the May job openings were below consensus. Nothing overseas.
Q2 GDP outlook stumbles.
Housing remains the
weakest link.
It was a quiet
news day, reflecting Powell’s nothing burger speech. My guess is that he didn’t want to upstage
his appearance to in congress.
Powell’s failing
Fed.
Bottom line: the economic data continues to reflect
a sluggish (at best) economy. As you
know, I am not convinced that a recession is in the picture; but the yellow light
in flashing on growth becoming even more sluggish---which will likely have a
negative impact on corporate profits. And
that would make current valuations even more extreme.
Of course, that means nothing given
the Market/Fed co-dependency. Powell
starts his two days of congressional testimony today. Plus, the Fed will release the minutes from
the last FOMC meeting. If the narrative
remains dovish, stocks are likely to maintain an upward trajectory.
Liquidity fears
hit UK equity fund.
News on Stocks in Our Portfolios
Cummins (NYSE:CMI) declares $1.311/share quarterly dividend, 15% increase from
prior dividend of $1.14.
Economics
This Week’s Data
US
Month
to date retail chain store sales fell less than in the prior week.
The
May JOLTS (job openings) came in at 7.3 million versus estimates of 7.5
million.
Weekly
mortgage applications declined 2.4% while purchase applications rose 2.3%
International
June
Japanese PPI was -0.5% versus expectations of -0.3%.
June
Chinese CPI was -0.1%, in line; PPI was unchanged versus +0.3%.
May
UK trade deficit was -L2.3 billion versus forecasts of -L2.6 billion; GDP was
+0.3%, in line; industrial production was +1.4 versus +1.5%; construction
spending was +1.7% versus +0.9%; YoY GDP was +1.5% versus +1.3%.
Other
The
economic impact of a higher minimum wage.
What
I am reading today
How
to get better sleep.
Edmund
Burke; one of conservatism’s founding fathers.
The
Epstein case.
Update.
Quote of the day.
What is the magic number for
retirement savings?
When
to claim social security benefits.
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