The Morning Call
6/5/19
The
Market
Technical
The Averages (25332,
2803) smoked yesterday but on low volume and mixed breadth. Both are in very short term downtrends. The Dow remained below both its MA’s (now
resistance). The S&P closed above
its 200 DMA, negating Friday’s break and right on its 100 DMA. My assumption is still that the direction is
lower---though I am a lot less certain of that.
Follow through.
VIX fell 10%, but still finished in a very
short term uptrend and above both MA’s (now support). So, like stocks, it is on the cusp of change and
follow through is the watch word.
TLT declined 1 %
on big volume, but ended above both MA’s (now support) and in a very short term
uptrend. It remains overbought; so, more
downside would not be surprising. (must read)
And.
The dollar was off
three cents but remains in a short term uptrend and above both moving averages (now support). However, it finished below the lower boundary
of its very short term uptrend, voiding that trend. As I noted yesterday, it had to do that in
order to close those two gap opens.
GLD rose fractionally,
closing within a short term uptrend, above its 200 DMA (now support) and above
its 100 DMA for a third day, reverting to support. However, it will still need to fill those two
lower gap up opens.
And.
Bottom line: while
yesterday’s price action was impressive, volume and breadth were not. That doesn’t mean further upside isn’t possible;
but its extent is critical, technically speaking. Weak follow through would be increase the
probability that a top has been made.
UUP, TLT and GLD
continued to act like safety trades, even though the long bond was down---but
as I said, it was very overbought.
Tuesday in the charts.
Tops are a process.
Fundamental
Headlines
Yesterday’s data
was somewhat upbeat: month to date retail chain store sales and light vehicle
sales were better than anticipated while March/April factory orders were mixed.
Overseas, April
EU unemployment was better than expected while May EU core inflation and the
May UK construction PMI were disappointing.
In other news, JP Morgan’s May global manufacturing PMI fell.
In trade news
(1)
the Chinese made some accommodative noises Monday
night, but that was reversed on Tuesday,
This article
presents China’s point of view on the trade clash. Notice how the author blames the US for China
reneging on the deal.
(2)
Mexican officials were quoted as saying that they want
to work with the US in solving the immigration problem. So, at first glance, it appears that Trump’s tariff
threats may have worked. That said, I continue
to believe that using a trade weapon [tariffs] to redress a nontrade issue [immigration]
is a mistake for the long term because it will reduce the willingness of any
trade partner to make a trade deal with Trump given his own willingness to
reverse it on a whim.
Senate GOP at odds with Trump over Mexican tariffs.
A cost of the trade war.
Some alternative strategies for
putting pressure on China and Mexico.
However, the highlight of
the day was Powell basically making a Draghi-esque statement, saying that the
Fed would do whatever is necessary to keep the economy (wink, wink, the Market)
growing.
Bottom line: well, you can’t argue with
success. And if this Mexican ploy works,
that is how it will be judged, at least in the short term.
More important, Powell’s
comments suggest that the Fed continues to believe that it can ever expand what
it considers its ‘tool kit’ to exercise control over the economy despite the fact
that its old ‘tool kit’ (QE) was demonstrably ineffective in doing so. Sooner or later, the Market is going to
realize that all that it is has been successful at is the gross mispricing and misallocation
of assets---which is a major reason that its economic growth has proven so elusive. When that occurs, I don’t know. But the dollar, bond and gold markets are
indicating that something is amiss.
Update
on Buffett valuation indicator.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month
to date retail chain store sales growth was slightly better than in the prior
week.
April
factory orders were off 0.8% versus expectations of -0.9%; however, the March
reading was revised down.
Weekly
mortgage applications rose 1.5% while purchase applications were down 2.4%.
The
May ADP private payroll report showed an increase in jobs of 27,000 versus
projections of 180,000.
International
April
EU PPI fell 0.3% versus estimates of +0.3%.
April
EU retail sales declined 0.4%, in line.
The
May Japanese services PMI came in at 51.7 versus forecasts of 51.9; the Chinese
Caixin composite PMI was 51.5 versus 52.4 while the services PMI was 52.7
versus 54.3; the EU composite PMI was 51.8 versus 51.6 and the services PMI was
52.9 versus 52.5.
Other
European
Commission initiates disciplinary process against Italy over public debt.
April
median household income rose.
Framing
lumber prices down almost 50% YoY.
Air cargo demand falling.
What
I am reading today
This will piss off the
tree huggers.
Two tribes.
A promising new treatment for
prostate cancer.
A
sensible reform to higher education/student loans.
A
thoughtful approach to watching the news.
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
