Friday, June 12, 2020

The Morning Call---What blow off top?

The Morning Call


The Market

What blow off top?  It would appear that is yesterday’s story with the Averages  (25128, 3002) executing a Niagara Falls formation. 

The negatives:

(1) both of the indices broke below the lower boundaries of their very short term uptrends; if they remain there through the close today, those trends will be negated,

(2) the DJIA finished back below its 200 DMA---the day after it reverted to support; if it remains there through the close today, it will return to resistance,

(3) the Dow ended right on its 100 DMA,

(4) the VIX skyrocketed, ending above the upper boundary of its very short term downtrend; if it remains there through the close today, that trend will be voided. 

The positives:

(1) both closed their 6/5 gap up opens,

(2) while breadth was terrible but it helped relieve the significantly overbought condition of the Market.    

My assumption remains that the Market’s bias is to the upside, though clearly yesterday’s pin action gives me pause.  The question is, where will the indices find support?  If they can hold at the level of their DMA’s, then that assumption will remain operative.  A break below those levels would point to a retest of the March 23rd lows.

Buy the dip or run for the hills?

If this doesn’t convince you that investor psychology has reached the stage of absurd-and-beyond, then you should participate in the offering.  Otherwise, treat it for what it is---another indication of an irrational Market.

Gold declined, leaving open the question as to whether it can reestablish upside momentum.  The long bond rose, finishing above the last lower high---a big step to regaining upside momentum.  The dollar was up, bouncing off the lower boundary of its short term trading range---a minor victory in an otherwise ugly chart.

Thursday in the charts.


            It was another light day for data.  Weekly jobless claims rose but less than expected while May PPI was much higher than anticipated though core PPI was in line.

The real economic catastrophe has not hit yet.

            Nothing overseas.
            The coronavirus

            ***overnight update.

            More than 95% of UK coronavirus deaths had pre-existing conditions.

            The impact of the coronavirus on small businesses.

            The Fed

            The Fed has created a bubble at the expense of the economy.

The Fed will bring everything down.

            Bottom line: after a day in which Powell basically said that the Fed would do everything in its power, in whatever amount necessary, for as long as necessary, it was a bit of a surprise to me that stock prices would crash.  Granted there are other problems for investors to worry about.  But that is the point---investors’ unconditional faith in the Fed put would suggest those concerns of lesser importance in the scheme of things.  Of course, this may have been a one day phenomenon.  Stay tuned.  

            The odds are stacked against the bears.
    News on Stocks in Our Portfolios


   This Week’s Data



            April Japanese industrial production fell 9.8% versus consensus of -9.1%; capacity utilization was down 13.5% versus down 2.6%.

            The April UK trade balance was +L0.31 billion versus estimates of -L6.2 billion; industrial production was -20.3% versus -15.0%; manufacturing production was -24.3% versus -15.8%; GDP was -20.4% versus -18.4%.

            April EU industrial production was down 17.1% versus forecasts of down 20.0%.


Hotel occupancy down 45% YoY.

The government says that there is no inflation---except for the things that you buy.

What I am reading today


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