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The Morning Call--Waiting For The Weekend

The Morning Call


The Market


The Averages (26526, 2924) were mixed (Dow down, S&P up) yesterday, continuing to work off their overbought condition without any kind of major correction---at least, so far. They remained below their all-time highs, but, as you know, I have suspended a directional call on the short term trend. They are above both moving averages and in intermediate and long term uptrends.

At the moment, I am waiting for the indices to fill last Tuesday’s gap up opens and then, see how they trade following that. My current assumption is that the momentum is to the upside, that those gaps will be filled and the upward trajectory will be resumed. However, I am bothered by the lack of volume (which was down again yesterday) and the failure of other major indices to make new highs.

Small caps lagging

Small Caps Are Lagging. Investors Should Be More Concerned When They Lead

Breadth is weakening.

Looking At The Market Through Different Lenses: 1 - Cumulative Highs/Lows

VIX fell 2½%, remaining between its 100 DMA on the downside and the upper boundary of its very short term downtrend on the upside. A break of one of these levels should provide directional information.

TLT was up 3/4 %, closing above both MA’s (now support), in a very short term uptrend and within forty cents of its twenty year high. As I noted previously, that high represents major resistance; so, I expect more backing and filling before another attempt is made to break above it---if indeed there is such an attempt.

The bond rally continues

US Bond Market's Rally In Everything Rolls On For 2019

The final recessionary shoe has fallen.

Albert Edwards: This Was The Final Recessionary Shoe, And It Has Now Fallen

The dollar was unchanged, finishing below its 100 DMA (now resistance) but in a short term uptrend, above its 200 DMA (now support) and still needs to close last Thursday’s gap down open.

GLD declined ten cents but ended above the upper boundary of its intermediate term trading range for a fourth day, resetting to an uptrend, in a short term uptrend and above both MA’s (now support). However, there is a major gap up open lower down---which needs to be filled.

Bottom line: the Averages continued to consolidate after the big run since the first of June. They got very overbought, so that pin action isn’t surprising. In fact, it is a plus that the recent backing and filling has been so tame. Still more is needed to close those gap up opens lower down. Nonetheless, I continue to believe that momentum remains to the upside; though clearly, that call is less certain now.

Are stocks already in a bear market.

Are Stocks In A Bear Market?

It is remains disconcerting that volume is low (versus high volume in bonds, the dollar and gold which are pointing to recession/or the need for a safety trade), breadth is weakening, other indices have failed to confirm Monday’s breakout of the Dow/S&P and the VIX has been acting unconventionally for the last couple of weeks.

Thursday in the charts.

Crypto Craters But Bonds & Stocks Bid On 'Bad' Macro/Trade News

How a technician views this weekend’s US/Chinese trade summit.

Can A China "Deal" Delay The Inevitable?

Does trend following work?

Will Trend-Following Continue to Disappoint? - A Wealth of Common Sense



Yesterday’s economic data releases were mixed: May pending home sales and final Q1 corporate profits were better than expected; final Q1 GDP growth was in line; and weekly jobless claims, final Q1 PCE prices and the June Kansas City Fed manufacturing index disappointed.

The de-anchoring of inflationary expectations.

"This Is The Largest De-Anchoring Of Inflationary Expectations In The History Of The Survey"

The ‘new normal’ isn’t new anymore.

The 'new normal' of slow growth is growing old, with no end in sight

Overseas, the numbers were also mixed: May Japanese retail sales and YoY Chinese industrial profits were above consensus; June EU consumer confidence was in line: June EU business confidence, economic sentiment and industrial sentiment were below estimates.

Investor attention was understandably focused on the Trump/Xi meeting this weekend to discuss trade. Unfortunately, the outcome looks very much in question. As noted in the link above, this is one of those binary events: if it appears progress has been made then investors will go hopping down the bunny trail, if not, not.

The current battle lines going into Saturday’s meeting between Trump and Xi.

Kudlow warns of new tariffs.

Stocks Stumble After Kudlow Warns On Additional China Tariffs

Food shortages in China increase US leverage.

Kyle Bass: Massive "Pig Ebola" Epidemic Gives Trump Big Leverage In China Trade Deal

The main headline was the Fed’s announcement that the major banks had passed the second phase of their stress test which opens the way for them to increase their dividends and pursue additional stock buybacks---which they did immediately. More importantly, it signals that the banks are in better shape to handle a financial crisis than they were in 2009. That said, Sheila Bair (who is my all-time favorite bureaucrat) isn’t getting jiggy.

Fed Approves Capital-Return Plans Of All 18 Banks (Even Deutsche!)

Under the category of beating a dead horse, I include this latest shot at failed Fed policy.

A postmortem of the Fed's failed attempt to normalize

OK, two shots. The Fed has always been, is and will forever be behind the curve.

Is The Fed Already Behind The Curve?

Bottom line: the economic data continues to deteriorate. Another month of this and I will have to consider lowering my growth forecast. However, even if I do, I don’t expect any kind of 2009 like decline. That said, any slowdown will likely have a negative impact on corporate profits. Again, probably nothing disastrous. But that would make current valuations even more extreme.

That, of course, is a long term consideration. Short term, the Market has to digest the outcome of this weekend’s US/Chinese trade talks---which as I opined above, seems like a binary event that will likely have a binary impact on the Markets.

That brings me back to the longer term. Given the Market/Fed co-dependency, any significant Market move, whichever direction, will likely have an effect on Fed monetary. If the Market spikes, the odds of any rates cuts go down. If it plunges, then I would expect a cut in July, maybe as much as fifty basis point if the Market really tanks.

So, assuming the stock market/Fed co-dependency remains in place, I expect the Market to go up whatever happens in Osaka, i.e. if equity prices jump on a trade deal, the Fed won’t get in the way; if they decline, it will likely cut rates.

News on Stocks in Our Portfolios


This Week’s Data


May pending home sales rose 1.1% versus estimates of +1.0%.

Political Calculations: U.S. New Home Sales Market Cap Rebounds

The June Kansas City Fed manufacturing index came in at 0 versus a reading of 4 in May.

Kansas City Fed: "Tenth District Manufacturing Activity Flat"

The May PCE price index was up 0.2%, in line; core PCE was up 0.2%, also in line.

May personal income rose 0.5% versus projections of +0.3%; personal spending was +0.4%, in line.


May Japanese CPI was reported at 1.1% versus forecasts of 1.3%; core CPI was 0.9&, in line; industrial production was up 2.3% versus 0.7%; construction orders were -16.0% versus +15.1%; housing starts were down 8.7% versus -4.3%.

Q1 UK GDP growth was up 0.5%, in line; business investment was +0,4% versus +0.5%.

June EU CPI was +1.2%, in line while core CPI was +1.1% versus +1.0%.


What I am reading today

The difficult art of doing less.

The surprisingly difficult art of doing less

Compounding gone wild.

Compounding Gone Wild!

Report blames broken global drug control regime epidemic of abuse and death.

Report Blames "Rotten" Global Drug-Control Regime For Epidemic Of Abuse And Death

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