The Morning Call
5/1/18
The
Market
Technical
The indices
(DJIA 24165, S&P 2648) had another of those roller coaster days, yesterday
opening up big then closing down big. Volume was up; breadth terrible. Intraday,
the S&P touched the upper boundary of its very short term downtrend and
then fell back (though the Dow remained above the upper boundary of its former
very short term downtrend). That leaves
the Averages out of sync with respect to this one indicator, meaning that there
is little informational value on direction/momentum. Both finished below their 100 day moving
averages (now resistance) but above their 200 day moving averages (now support).
The DJIA closed in a short term trading
range but in intermediate and long term uptrends. The S&P is in uptrends across all
timeframes. The short term technical picture remains cloudy. Longer term, the assumption is that equity
prices will continue to rise.
The VIX rose 3 ½ %, but
still ended below its 100 day moving average for a second day (if it remains there
through the close today, it will revert to resistance). It finished above its 200 day moving average
and the lower boundary of its short term trading range. Additional weakness would
point to higher stock prices.
The long
Treasury rallied for a third day, pushing further back above the lower boundary
of its long term uptrend. However, it remains
below its 100 and 200 day moving averages and in a short term downtrend---indicating
a lot of resistance to a further increase in prices (decline in rates).
The dollar was
up ½ %, remaining above the lower boundary of its newly reset intermediate term
trading range, above its 100 day moving average (now support) and above its 200
day moving average for the third day (now resistance; if it remains there through
the close today, it will revert to support).
GLD was pounded,
falling below its 100 day moving average (now support; if it remains there
through the close on Wednesday, it will revert to resistance), but finishing above
its 200 day moving average (now support) and in a newly reset short term
trading range.
Bottom line: as
you know, I have been focused on the Averages’ pin action as they continue to
bounce between the upper and lower boundaries of an ever shrinking range. As I noted above, in yesterday’s trading, the
S&P touched the upper boundary of its range and then reversed and headed
back toward the lower boundary. Sooner
or later that range will be broken; history suggests a strong follow up move in
the direction of the break.
TLT investors
appear to have backed off the thought of rising interest rates; although short
rates continue to have an upward bias. That
explains the pin action in both the dollar and gold. However, as I noted Saturday, the recent price
action in all the indicators suggests a good deal of investor turmoil/confusion
as multiple support/resistance levels are being challenged.
Price
instability/uncertainty remains for the moment.
The question is duration. Patience.
I love my cash.
Does
‘sell in May’ work (short):
Fundamental
Headlines
Yesterday’s
economic stats were mixed to negative.
The good news: the April Dallas Fed manufacturing index was strong. The bad news: March pending home sales index
and the April Chicago PMI were below forecasts.
The so/so news: March personal income was up less than expected, while
personal spending was in line (consumers earning less but spending more).
The
early headlines covered several large mergers (Sprint/T Mobile; Marathon /Andeavor;
J. Sainsbury/Asda)---something that always gets investors’ juices flowing. Of
course, I thought that corporations were going to spend their tax cut benefits
on capital expenditures and new hiring.
Later
in the day, Israeli PM Netanyahu disclosed ‘alleged’ secret files on the
Iranian nuclear program, suggesting that they have been pushing full steam
ahead developing nuclear warheads despite the treaty. This is not apt lead to more stability in the
Middle East. (medium):
Meanwhile
in the background, the FOMC starts its May meeting today. So we may have headlines tomorrow related to
the substance and tone of the following statement tomorrow.
***overnight,
Trump delayed the imposition of steel and aluminum tariffs on Canada, the EU
and Mexico.
Bottom line: investors
remain unimpressed by a very positive first quarter earnings season. What seems to have their attention is the
uncertainty around economic growth, Fed policy and interest rates. About time, dare I say? Of course, trade (China) and Iran are in the
mix. But ultimately, I believe that it
will be growth, interest rates and the unwinding of QE that determines the
value of assets.
A
warning from Goldman (short):
How
to trade the end of the biggest monetary experiment in history (medium):
Bull
markets do die of old age (medium):
News on Stocks in Our Portfolios
Revenue of $5.14B (-9.5% Y/Y) beats by $170M.
Cummins (NYSE:CMI): Q1 EPS of $3.30 (excl discreet tax
charges and cost of a product campaign) beats
by $0.38.
Revenue of $5.6B (+22.0% Y/Y) beats by $420M.
Revenue of $4.25B (+19.0% Y/Y) beats by $40M.
Accenture
(NYSE:ACN) will acquire Certus Solutions, a UK-based
provider of Oracle Cloud implantation services. Terms not disclosed.
Certus Solutions client
industries include government, health, public services, financial services,
logistics, and telecommunications.
Economics
This Week’s Data
US
The
April Chicago PMI was reported at 57.6 versus expectations of 57.8.
March
pending home sales rose 0.4% versus estimates of up 1.0%.
The
April Dallas Fed manufacturing index came in at 21.8 versus forecasts of 18.0.
International
Other
Six
charts on the economy (short):
Rising
rates puts pressure on the Fed (medium):
So
does the escalating Treasury financings (medium):
April
regional Fed manufacturing overview (medium):
What
I am reading today
Is
book value irrelevant? (medium):
Volatility
in private investment funds (medium):
Three
steps to avoid running out of retirement funds (medium):
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