The Morning Call
6/5/23
The
Market
Technical
In a volatile week
(what else is new?), the S&P negated last Friday’s break above the 4200
level, then reversed itself and finished above 4200 on Thursday and
Friday. If it closes above that level
today, the S&P will confirm the break and set its sights on the upper boundary
of its short-term trading range (~4325).
Given the explosiveness of its pin action in the last two days, it seems
highly likely that the break will be confirmed.
That said, Friday saw a gap up open which needs to be filled. So, the S&P has an anchor tied to its
butt until that occurs. I am not
suggesting a reversal of any kind just that some backing and filling is needed
before taking on new challenges.
As you know, I have
been skeptical that this latest move is the start of a new bull market. But if the break of 4200 occurs, I have to
consider it a possibility. The good news
is that this Market has been very narrow in its advance (i.e., a few stocks
accounting for most of the gain). Which
means that there are plenty of reasonably valued stocks that are due for either
a catch up to the AI euphoria or will offer limited downside if we get a major
sell off. I have to date avoided playing
that game; but a breakout of a well-defined trading range suggests putting some
money to work. However, it seems prudent
to see how the S&P handles that upper boundary of its short-term trading
range before making a rash move; after all, it is only another 50 points
higher. If a challenge of that level is
successful, then the next resistance is at 4818 (its all-time high) and that
would prompt action. In the meantime,
color me nervous.
What happens following
periods of very narrow breadth.
https://www.zerohedge.com/markets/will-very-narrow-breadth-lead-broad-equity-upside
The long bond rallied
on the week, after bouncing off the lower boundary of its intermediate term
downtrend. Nevertheless, it made a fourth lower high. So, there was no change in the downward momentum. That said, the stock boys seem to be betting
on the extreme Goldilocks scenario (i.e., no recession/a debt ceiling deal/the
banking crisis is over and an accommodative Fed); and bond investors aren’t
putting up much resistance to it. On the
other hand, there is a tsunami of Treasury funding coming (following the debt
deal) which ought to be of concern. Very
confusing.
Gold had an unusual week. It voided the challenge of the lower boundary of its very short-term uptrend, rallied some more, then ended the week initiating another challenge of that lower boundary, but still closed up for the week. If we assume stock and bond investors are correct, then it seems reasonable that gold would experience some weakness.
The dollar had a
very disappointing week, having failed the challenges of both its 200 DMA and
the upper boundary of its short-term trading range. Technically, that just keeps it in a trading
range; but still, it is a loss of upside momentum. Perhaps more important, it should be gaining upside
momentum if the equity and debt boys are correct; and that offers up at least a
little cognitive dissonance.
Friday in the
charts.
Epic week of inverse fear.
https://www.zerohedge.com/the-market-ear/epic-week-inverse-fear
Fundamental
Headlines
The
Economy
Last Week Review
The
US stats last week were slightly positive (the overseas data were again quite
negative) as were the primary indicators (one neutral, two plus). The balance
was determined by employment data which is a mixed blessing: positive that the
economy remains strong; negative that it incentivizes the Fed to stay higher
for longer. So, the numbers remain
upbeat with no clear near-term signs of a recession and certainly no sense of
how deep it may be if it occurs at all.
As you know, I am not an optimist on this count; but to date, we are
still lacking sufficient evidence to back up a recession forecast, although
some historically accurate forward-looking indicators like the yield curve and the latest
read on the leading economic indicators are still predicting one. However, a couple
more weeks of this and I am throwing in the towel.
The
other issue investors must deal with is, of course, inflation. And perhaps more
importantly, how the Fed perceives this problem and even more important, just
how firm is its determination to achieve its 2% target. Clearly the stats show
a need to continue tightening. However, the
Fed has proven time and again that it is weak kneed when it comes to monetary discipline. So, I have no great expectations that it will
stick to its guns in pushing inflation back to 2%.
Bottom
line: I am perhaps too stubbornly sticking to my recession scenario (though not
for much longer) and, at least near term, continue to be more worried about it
than inflation.
Longer
term, irrespective of what happens over the next year, we are still faced with
a struggling economy growing at well below its historic secular rate.
Regrettably, years of fiscal profligacy have left us with a debt to GDP
ratio far in excess of the boundary marked by Rogoff and Reinhart as the level
at which the servicing of too much debt negatively impacts the growth rate of
the economy. And years of irresponsible monetary expansion have led to the
misallocation of resources and the mispricing of risk.
Correcting those self-inflicted wounds won’t be easy. It will take years
of fiscal and monetary restraint to do so. And that would mean less fiscal
stimulus and interest rates staying higher for longer than many now expect---which
unfortunately is not apt to happen.
The
Economy
US
International
The April German
trade balance was E18.4 billion versus estimates of E16.0 billion; the May services
PMI was 57.2 versus 57.8; the May composite PMI was 53.9 versus 54.3.
April EU PPI was
-3.2% versus predictions of -3.1%; the May services PMI was 55.1 versus 55.9; the
May composite PMI was 52.8 versus 53.3.
The May UK
services PMI was 55.2 versus consensus of 55.1; the May composite PMI was 54.0
versus 53.9.
Other
Correcting mistaken ideas about the
US economy.
https://www.aier.org/article/continuing-to-get-straight-the-facts-about-the-american-economy/
The Eurodollar standard isn’t going anywhere.
Update on big four economic indicators.
May vehicle sales per capita.
Fiscal Policy
The debt ceiling crisis may be over, but the debt crisis is only
growing.
Some pushback on the liquidity fears
arising from the Treasury replenishing
its bank account.
https://www.ft.com/content/46fbe596-d3d8-4a49-9eb2-fde3274ed06b
The Debt Ceiling
Next stop $50
trillion.
The Banking System
How to prevent bank runs.
News on Stocks in Our Portfolios
Bottom line
The latest from BofA.
https://www.zerohedge.com/markets/hartnett-we-remains-bearish-and-wrong
What
I am reading today
******************************************************************************
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
No comments:
Post a Comment