Wednesday, June 10, 2020

The Morning Call--The Market versus reality

The Morning Call


The Market

The Averages  (27272, 3207) did a bit of consolidating yesterday.  However, both of the indices remain in very short term uptrends and the DJIA finished above its 200 DMA for a third day (now resistance; if it remains there through the close today, it will revert to support).  While one down day does not void a blowoff top, any interruption needs to be limited.  Meanwhile, (1) the two huge gap opens (5/18, 6/5) remain unfilled, (2) the indices remain solidly in overbought territory and (3) the VIX continues to reflect growing investor uncertainty [it is now on the verge of breaking above the upper boundary of its very short downtrend].

            Margin again on the rise.

            Retail rampage continues.

            Warning signs.

Gold had another good day and has almost reestablished its upside momentum---‘almost’ being the operative word.  Ditto with the long bond---price up and, in the process, negating last Friday’s break below its 100 DMA.  But it still has work to do to regain upside momentum.  The dollar was down again on volume; its chart getting uglier by the day.

            Is the Treasury market starting to price in reflation?

            Tuesday in the charts.



Yesterday’s stats were mixed.  Month to date retail chain store sales were disappointing, the April (JOLTS) report was in line and April wholesale inventories/sales were a big plus.

OECD warns of deep global downturn.

The World Bank paints an equally grim future.

Overseas, April Japanese YoY cash earnings, May YoY machine tool orders and the April German trade balance were less than anticipated while Q1 final EU GDP was better and its unemployment rate was in line.

The coronavirus

***overnight update.

            The Fed

            The latest FOMC meeting started yesterday and will wrap up today.  There has been talk that the Fed may introduce ‘yield curve control’ as a new policy tool.  Here is a discussion of what it is and its impact historically on the markets.

            When will the Fed realize that it has broken the Market’s pricing mechanism?
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.

            The latest from Doug Kass.
            You are not smarter than Stanley Druckenmiller.
    News on Stocks in Our Portfolios


   This Week’s Data


            Month to date retail chain store sales fell at a faster pace than last week.

            The April job openings report (JOLTS) showed 5.05 million openings versus estimates of 5.0 million.

April wholesale inventories rose 0.3% versus expectations of +0.4%; and that is with sales falling 16%.

Weekly mortgage applications were up 9.3%, purchase applications up 5.3%.

May CPI came in down 0.1% versus forecasts of 0.0%; core CPI was also down 0.1%, also in line.


            April Japanese machinery orders decline 12.0% versus projections of down 8.6%; May PPI was -0.4% versus -0.3%.

            May Chinese CPI was -0.8% versus consensus of -0.5%.


US exports to China jump in April.

            Rail traffic versus rail stocks.

What I am reading today


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