The Morning Call
Even though the S&P was up on Thursday, it still failed to trade back above the lower boundary of its very short term uptrend, voiding that trend (the Dow remained above the lower boundary of its very short term uptrend). The good news in that pin action is that it, at least, closed last Friday’s gap up open; though that big April 1st gap up open is still hanging out there, waiting to be filled (the Dow has the same problem). However, as you can see, closing that gap will do almost no technical damage to the S&P chart and certainly wouldn’t raise concerns about anything other than a minor retreat.
Technically speaking, last week, the long bond performed as close to perfect as possible, i.e. it closed March’s big gap up open, traded down to the lower boundary of its very short term uptrend and then bounced hard on huge volume. That clearly is a challenge to the stronger growth/higher interest rate narrative.
On Thursday, the dollar succeeded in trading above its prior high---which you will recall, in my opinion, was the only real technical negative in its chart, minor as it may have been. The only problem is that it did so on a gap up open. And you know what that means. It will likely be closed.
GLD’s chart is breaking down. On Thursday, the 100 DMA reverted to resistance and the neck line of the head shoulders pattern confirmed its break. The downside price objective is now seven points lower.
The VIX had a rough week, with its chart remaining quite negative (below both MA’s and in a very short term downtrend). As I noted last week, normally, that would suggest further upside for stocks. However, on Wednesday, it traded down to the lower boundary of its short term trading range and bounced. Then Thursday, it headed down again seemingly preparing for another challenge of that lower boundary---which it may well do. But as I also noted last week, the VIX is near historic lows; so, any further decline will put it even closer to major, major support and suggests stock prices are getting stretched to the upside. That doesn’t mean that they can’t eventually go higher, even much higher; but it likely means some consolidation in which the VIX returns to more normal levels before stocks experience any meaningful move up.
Bottom line: taking the pin action in the S&P and the VIX together, it seems reasonable to me to see some very short term weakness in stock prices. However, I still believe that the S&P will challenge its all-time high.
I am back to being a bit confused by the price action of the other indicators that I follow. The dollar is likely up because investors believe that the US economy will gain strength---that or they at looking to the US as a safe haven. The long bond has been hinting at the stronger economy/higher interest rate narrative; but the chart needs to break in order to confirm that, at least, in my mind. Friday’s advance on huge volume suggests otherwise. Gold usually goes down on a strong dollar and higher interest rates; but bond investors don’t seem to have bought into that scenario.
Last Thursday in the charts.
The dataflow last week was neutral though the primary indicators were negative (March housing starts/permits [-], industrial production [-], retail sales [+], leading economic indicators ). I rate the week a negative. Score: in the last 184 weeks, fifty-nine positive, eighty-four and forty-one neutral.
This is the third consecutive week in which the overall data was neutral and that supports the notion that the numbers have ceased declining. Nevertheless, a week of negative primary indicators can’t be ignored. I still believe that the stats will improve as we go into the second quarter. Indeed, I want the data to improve. That is in my forecast. However, this week’s results don’t help the cause.
The numbers from the rest of world were slightly negative despite the current upbeat trend in Chinese data. As I noted last week, my skepticism notwithstanding, most investors are accepting these numbers at face value; so, it would be foolish of me not to assume the odds are that I am wrong. That said, given how large trade is as a component of Chinese GDP, at some point, all this positive Chinese economic activity has to show up in some other country’s stats. So far, it hasn’t.
Default problems in China.
Chinese monetary policy takes a dovish turn.
Growth problems in Europe.
Importantly from a Market standpoint, this dataflow has yet to comport with the increasingly cited narrative of a global economic recovery and higher interest rates. That doesn’t mean that it won’t eventually; but right now, the burden of proof is on the optimists.
The trade news last week wasn’t all that great. While it appears that there will be a US/China trade agreement, it has apparently been watered down sufficiently to not really accomplish much with respect to correcting the inequities in Chinese industrial policy and IP theft. That said, we don’t know the provisions; so, I withhold judgment.
On another front, the US and EU are preparing to negotiate new terms to the current trade agreement. As you might expect where Trump is involved, the preamble was an exchange of threats---though given NAFTA and the current outline of the US/China trade agreement, that probably doesn’t mean much.
News on Stocks in Our Portfolios
Genuine Parts (NYSE:GPC): Q1 Non-GAAP EPS of $1.28 misses by $0.03; GAAP EPS of $1.09.
Revenue of $4.74B (+3.3% Y/Y) misses by $50M.
Schlumberger (NYSE:SLB): Q1 Non-GAAP EPS of $0.30 in-line; GAAP EPS of $0.30.
Revenue of $7.88B (+0.6% Y/Y) beats by $60M.
Schlumberger (NYSE:SLB) declares $0.50/share quarterly dividend, in line with previous.
Kimberly-Clark (NYSE:KMB): Q1 Non-GAAP EPS of $1.66 beats by $0.11; GAAP EPS of $1.31.
Revenue of $4.63B (-2.1% Y/Y) beats by $80M.
This Week’s Data
The March Chicago Fed national activity index came in at -.15 versus consensus of +2.55.
Cass Freight Shipment Index declines for fourth month in a row.
The Japanification of the US economy.
Washington ends waivers on Iranian oil exports.
Iran counters with threat to close the Strait of Hormuz.
What I am reading today
Quote of the day,
The student loan conundrum.
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Disclosure: I am/we are long gpc, kmb, SLB.