The Morning Call
3/7/18
The
Market
Technical
The indices
(DJIA 24884, S&P 2728) rose modestly, though volume continued to decline and
is now at a relatively low level; breadth remained mixed. The Averages are above both moving averages
and within uptrends across all major timeframes. The technical assumption is
that long term stocks are going higher; though the Averages need to overcome
their former highs before we have an all clear signal.
The VIX fell another
2%, but remained in the narrowing trading range formed by lower highs and
higher lows. It continued to trade at an
elevated level, suggesting that there is no end to the recent volatility.
The long
Treasury was up fractionally---which did little to halt its downward momentum
or widen to any extent the gap between its current price and the lower boundary
of its long term uptrend, a breach of which would clearly intensify investors’
concern about rising interest rates/inflation
The dollar declined,
ending below both moving averages and in an intermediate term downtrend. It remains an ugly chart and isn’t being
helped by rising concerns about a trade war.
GLD was up 1%, finishing
above its 100 and 200 day moving averages and in a short term uptrend. So momentum remains to the upside, though it
must still overcome a very short term downtrend.
Bottom line: the
technicals of the equity market point higher.
TLT, UUP and GLD had another one of those days in which they were out of
balance with stocks and themselves.
Fundamental
Headlines
The
economic data released yesterday was again mildly upbeat: month to date retail
chain store sales grow improved from last week; and while January factory
orders were below expectations, the prior month revision made the two months a
wash. Still a wash for two months is
hardly indicative of an improving economy.
The
stunner of the day came after the Market close.
Gary Cohn, Trump’s national economic director, a Wall Street favorite
and a leading voice against tariffs, resigned.
Of course, the press releases by Trump, chief of staff Kelly and Cohn
himself were full of praise and joy of experience. And most of the ‘unnamed sources’ contended
that Cohn’s departure was the result of cumulative issues.
Whether or not
that is the case (see below), the end result appears to be that the pro-tariff
faction within the administration is now in ascendancy. So getting back to the potential scenarios
that could be playing ([a] Trump is right about the extent of price cheating
and that there will be little response, [b] he is about to start a real trade
war or [c] all this theater is just part of the Donald’s ‘art of the deal’
negotiating strategy) alternative [c] as a potential likely outcome in seems to
have taken a body blow.
Trump
is running a personal trade deficit (medium):
EU
imposes its own tariffs on Chinese steel (short):
Bottom
line: I have no idea what the final results of Cohn’s resignation means. When a significant event like this occurs, it
is always best to take a few deep breaths before coming to any conclusion. We will probably know more within the next
couple of days that will help clarify the situation. In the meantime, patience.
More
on valuation (medium):
The
February dividend score (short):
I
have debated with myself in these pages on exactly how much of the tax cuts
will go to shareholders (doing nothing for economic growth) and how much to
workers and cap ex (doing something for economic growth). Here is the first data analysis that attempts
to provide an answer. It is likely not
the last; so it shouldn’t be accepted as gospel. However, in this study, the score is
shareholders 65, workers 15.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month
to date retail chain store sales grew more rapidly than in the prior week.
January
factory orders fell 1.4% versus expectations of down 1.3%; however, the
December reading was revised up by 0.1%, making the two months a wash.
Weekly
mortgage applications rose 0.3%, but purchase applications fell 1.0%.
International
Global
economic growth strengthens in February (short):
Other
Dismantling
Dodd Frank (medium):
More
(medium):
More on consumer credit
(medium):
Jeffery Snider on the implications
of the Italian elections (medium):
What
I am reading today
Reasons not to claim
social security early (medium):
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