Tuesday, June 9, 2020

The Morning Call---It still looks like a blowoff top

The Morning Call


The Market

The Averages  (27572, 3232) experienced another explosive day to the upside.  Both of the indices remain in very short term uptrends.  The DJIA finished above its 200 DMA for a second day (now resistance; if it remains there through the close on Wednesday, it will revert to support).  While the current move continues to look like a blowoff top to me, the negatives are growing:  (1) the two huge gap opens (5/18, 6/5) that remain unfilled, (2) the indices are now solidly in overbought territory and (3) the VIX continues to reflect growing investor uncertainty [yesterday it was up on a big up day].

            What if the stock market is exactly right?

            What if it not?

Part 2 (must read).

GLD had a good day, but not enough to reverse Friday’s weakening in upside momentum.  Ditto with the long bond---price up but no improvement in last week’s significant loss of momentum.  The dollar was down again on volume, remaining in a newly reset very short term downtrend.

            Monday in the charts.



            The economy

            No US stats released yesterday.
The US officially entered a recession in February.

            Update in big four economic indicators.

            The economy is experiencing an epic collapse in demand.

            Overseas, final Japanese Q1 GDP fell and private consumption along with April German industrial production were below consensus while final Japanese Q1 capital expenditures were better than anticipated.
            The coronavirus

            ***overnight update.

            The coronavirus is yesterday’s story.

            WHO now says asymptomatic coronavirus carriers are not very infectious.

                        The Fed

            Could the Fed buy gold?

Bottom line.  barring an unexpectedly damaging second wave of the coronavirus, the economy is likely through the worst of the recession.  However, as I continue to note, we still have no idea what the lockdown’s ultimate impact will be on American’s spending, social and work habits. 

And yet, investors are tip toeing through the tulips. To me the only explanation for this total breakdown of the relationship between price and value is QE; and I have no clue when and how this disconnect corrects itself.  Invest accordingly.

P.S. if I were fully invested, I would be desperately seeking sell candidates.  Conversely, if I had more cash than I might want, I would definitely NOT be chasing stocks up.

    News on Stocks in Our Portfolios
Tiffany (NYSE:TIF): Q1 Non-GAAP EPS of -$0.53 misses by $0.44; GAAP EPS of -$0.53 misses by $0.47.
Revenue of $555.5M (-44.5% Y/Y) misses by $98.47M.

Brown-Forman (NYSE:BF.B): Q4 GAAP EPS of $0.27 misses by $0.01.
Revenue of $709M (-4.7% Y/Y) beats by $27.88M.

   This Week’s Data


            The May small business optimism index came in at 94.4 versus estimates of 86.0.


            April Japanese YoY cash earnings fell 0.6% versus expectations of growing 0.6%; May YoY machine tool orders declined 52.4% versus -44.0%.

            The April German trade balance was +E3.5 billion versus consensus of +E15.9 billion.

            Q1 final EU GDP dropped 3.6% versus forecasts of -3.8%; unemployment decreased 0.2%, in line.


A deeper dive into last week’s nonfarm payroll number.

Six high frequency indicators for recovery.

North Korea cuts contact with the South.

What I am reading today

            How to avoid a funding shortfall in retirement.

            Policing the police.

            Hubble telescope makes astonishing discovery.

            How to control frustration.

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