Thursday, July 16, 2020

The Morning Call--Enjoying the ride

The Morning Call


The Market

The Averages  (26870, 3226) had another good day, though volume was down (again) and stocks drew nearer to overbought territory.  The Dow finished above its 200 DMA for a second day (now resistance; if it remains there through the close on Friday, it will revert to support).  Until the reversion occurs, the indices will remain out of sync.  But clearly this is a positive development.  It also filled its ‘island top’ gap intraday, though it fell back at the close.  Follow through is the key to judging the importance of this pin action. Bottom line, the indices charts are improving; but the Dow needs a little more fuel to revert its 200 DMA to support and confirm the filling of its ‘island top’.

I am sticking with my assumption that the Market’s bias is to the upside---at least until/unless the Averages revert their DMA’s to resistance.
With the other indicators, gold was up, the long bond was down (but maintains strong upside momentum) and the dollar was down.  This collective pin action is consistent with itself and with a weak economic outlook.

            Wednesday in the charts.



            The economy

Yesterday’s data releases were positive: June industrial production, capacity utilization, the July NY Fed manufacturing index and weekly mortgage applications were above expectations while purchase applications declined.

Update on the big four economic indicators.

            In addition, the Fed released its latest Beige Book, whose main headline was that  the economy is improving but has a long way to go to get back to prior levels.

The Markets are walking a dangerous tightrope.

                        High inflation and currency devaluation (must read):

            Overseas, the June Japanese trade balance was above estimates but June UK CPI and core CPI were hotter than anticipated.
            The coronavirus

            The misreporting of virus deaths.

            More details on Moderna’s just released vaccine trial.

            The Fed

            The Fed’s liquidity confusion.
            ***overnight, the ECB met and, as expected, left rates and its bond purchase program unchanged.

            Bottom line.  despite a less than positive news flow, stocks continue to advance and are a short hair away from a run at their February highs.  If your portfolio does not have  decent cash reserves (15% at a minimum; I am at 50%), now is the time to build them.  Then set back and enjoy the rest of the ride.

            The latest from Bill Gross.

    News on Stocks in Our Portfolios
BlackRock (NYSE:BLK) declares $3.63/share quarterly dividend, in line with previous.  

Johnson & Johnson (NYSE:JNJ): Q2 Non-GAAP EPS of $1.67 beats by $0.16; GAAP EPS of $1.36 beats by $0.18.
Revenue of $18.34B (-10.8% Y/Y) beats by $610M.


   This Week’s Data


            Weekly jobless claims were 1,300,000 versus forecasts of 1,250,000.

            June industrial production rose 5.4% versus estimates of +4.3%; capacity utilization was 68.6 versus 67.7.   

                June retail sales rose 7.5% versus expectations of +5.0%; ex autos, they were up 7.3% versus +5.0%.

            The July Philadelphia Fed manufacturing index was reported at 24.1 versus projections of 20.0.


            May UK unemployment came in at 3.9% versus consensus of 4.2%; average earnings fell 0.3% versus -0.4%.

            June Chinese unemployment was 5.7%, in line; YoY industrial production was +4.8% versus 4.7%; YoY retail sales were -1.8% versus +0.3%; YoY fixed asset investment was -3.1% versus -3.3%; Q2 GDP rose 11.5% versus +9.6%.


            Mortgage delinquencies soar.

What I am reading today
            The rising trend toward home schooling.

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