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Monday Morning Chartology--Noise Or A Change In Trend?

|Includes: Genuine Parts Company (GPC), GWW, KMB, PG, SLB

The Morning Call

4/23/18

The Market

Technical


Last week, the S&P challenged both the upper boundary of its very short term downtrend and its 100 day moving average on heavy volume and failed. That leaves it in the narrowing gap between its 200 day moving average and the upper boundary of its very short term downtrend. A break of either level would suggest a move in the direction of the break.


Talk about a sharp reversal, TLT got hammered Thursday and Friday. The very short term uptrend was negated, leaving downward pressure from its 100 and 200 day moving averages and its short term downtrend. A big test appears to be near as TLT approaches the lower boundary of its long term uptrend. A successful challenge will break a thirty year plus bull market in bonds and would have major implications for Fed policy (it will be very difficult to lower short rates when long rates are rising) and stock valuations (higher yields make bonds more competitive with stocks).

What Do They Know? Investors Dump High Yield Bond Funds Most Since Election


The dollar broke above the upper boundary of its intermediate term downtrend (if it remains there through the close on Wednesday, it will reset to a trading range), finished right on its 100 day moving average and is close to pushing out of the current three and a half month trading range. That the dollar would rally hard as bond yields are spiking is very consistent with historical trading patterns (bonds become a more attractive investment for foreigner; so they have to buy dollars in order to buy bonds).

Triffin Warned Us


Gold was hit hard Thursday and Friday on decent volume. Again that is not surprising in the face of rising interest rates. The good news (for gold investors) is that it is holding above its 100 and 200 day moving averages and the lower boundary of its short term uptrend. Whether it can stay in an uptrend depends of why yields are up: if it is due to strong economic growth, gold should decline; if it is due to inflation fears, it should rise or, at least, hold its own.

Turkey Will Repatriate All Gold From The US In Attempt To Ditch The Dollar


The VIX challenged its 100 day moving average and was unsuccessful. So for the moment, volatility is not going away; and that suggests some downward bias to the Market.


More charts:

Fistfuls Of Dollars And The Good (Bitcoin), Bad (Bonds), & Ugly (Semis) Markets


Oil breaking to the upside (short):

Oil Is Breaking Out, So Are Inflation Expectations


More on oil prices (medium):

Hedge Funds Have Never Been More Bullish Oil, But The "Ghost Of 2008" Looms


The Markets are speaking and no one is listening (medium):

Trader: "The Markets Are Speaking And No One Is Listening"


Bottom line: the big question at this moment is, was the Thursday/Friday pin action across all asset classes a sign of a major shift in the economic/Market narrative (i.e. weaker growth and higher inflation) or was it just a short term worry that will soon pass.


Fundamental


Headlines


Last week’s dataflow was mixed including the results of three primary indicators. Score: in the last 132 weeks, forty-four were positive, sixty-two negative and twenty-six neutral.

Even US Government Economists Are Now Predicting Trouble Ahead...

Say boys and girls, can you say ‘stagflation’? (medium):

Weekend Reading: The Return Of Stagflation

The Fed released its latest Beige Book; the bottom line of which was (1) consensus that the economy is continuing to expand at a moderate pace and (2) heightened worries about the potential impact of tariffs on inflation.

Fed's Beige Book: Sheer Panic Over Tariffs As Wage Growth Fizzles


Overseas, the numbers weren’t as upbeat with most of the poor data coming from the EU and China.

Problems in Germany (medium):

Germany Recession Indicator Flashes Yellow


Was 2017 the economic growth peak for the EU? (medium):

Saxo Bank: Reality-Check For The Euro Area Economy


Draghi admits EU economic growth may have peaked (short):

Draghi Admits "Growth May Have Peaked"; ECB To Delay QE Unwind


Chinese bond yields declining (medium):

Citi: "This Is Not A Healthy Chart"


US/China trade war truce? (medium):

Beijing Welcomes Mnuchin Visit As US Hints At China Trade-War Truce


IMF sounds the alarm on global debt (medium):

IMF Sounds The Alarm On Global Debt, Warns "United States Stands Out"

Morgan Stanley and B of A believe that the end of the credit cycle is near (medium):

Bank of America: "The Last Time We Saw This In The Market Was 2007"

Bottom line: the long term secular economic growth rate is being pulled in both directions. Deregulation and a potential improvement in trade are positive forces while the endless, massive deficits will act as a drag. On a shorter term basis, the economic growth rate is slowing as tax cuts are not having the positive impact that originally thought and the global economy appears to be losing steam.

In the meantime, the Fed is tightening monetary policy---not a plus in the face of economic weakness. Even worse, the Fed may not have the option to switch back of easing as inflationary forces seem to be increasing.

A weakening economy and a tightening Fed is not a combo historically beneficial to stock prices.


News on Stocks in Our Portfolios

Genuine Parts (NYSE:GPC): Q1 EPS of $1.27 misses by $0.05.

Revenue of $4.59B (+17.4% Y/Y) beats by $100M.

W.W. Grainger (NYSE:GWW): Q1 EPS of $4.18 beats by $0.76.

Revenue of $2.76B (+8.7% Y/Y) beats by $50M

Procter & Gamble (NYSE:PG): Q1 EPS of $1.00 beats by $0.01.

Revenue of $16.28B (+4.3% Y/Y) beats by $60M.

Schlumberger (NYSE:SLB): Q1 EPS of $0.38 beats by $0.01.

Revenue of $7.83B (+13.6% Y/Y) beats by $20M.

Kimberly-Clark (NYSE:KMB): Q1 EPS of $1.71 in-line.

Revenue of $4.7B (+4.9% Y/Y) beats by $90M.

Economics

This Week’s Data

US

The March Chicago national activity index was reported at .10 versus expectations of .29.

International

The April Markit EU manufacturing PMI came in below estimates, however the services and composite PMI were above.

Other

What I am reading today

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Disclosure: I am/we are long gpc, gww, kmb, pg, SLB.