I update each Saturday with my view of the stock market for the next few weeks (if occupied with family or travel, rarely I am a day or two late, just check back). The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a primary bear market, and buy back in for most of the next bull market. You can always scroll down a few weeks and find the latest “Long Term” update.
If you lose your bookmark to the blog, google “Rich Investing” and it should show up on the first page or so. The more often you google it and hit the link, the higher it will show in your results.
The monthly Long Term update will be posted on Wednesday the 19th.
The CPI rose a scant 0.1% in April, the smallest increase since January, while the increase in the cost of living over the past 12 months slowed to 1.8% from 2%. Initial jobless claimed rose by 3,000 to 222,000 in the seven days ended June 8. U.S. retail sales increased 0.5% in May, with broad-based gains, and the weak April data was revised up considerably. The University of Michigan said its consumer-sentiment index in June fell to a reading of 97.9 from 100 in May.
There are no concerns looking at these numbers.
The geo-political backdrop for the US is a mess. We are involved in a yearlong trade war with China that shows no sign of resolving. Trump and President Xi of China are not scheduled to meet at the G20 summit in Japan on June 28-29. Negotiating with China is different than with the Atlantic City city council. Trump threatened Mexico with tariffs over the transit of asylum seekers through its country, which could have been done silently, if at all. That could have been quietly negotiated but Trump seems to want the publicity. Trump has threatened the EU with tariffs that would hurt our best allies in Europe, primarily Germany and France. Trump pulled out of the Iran nuclear deal and now tensions in the Middle East are increasing. Iran is refusing to even speak to Trump and it appears he has started a diplomatic conflict without a plan to end it.
The international economies are all slowing, including the US. US GDP won’t be announced until late July, but CEO’s report business is slowing. We have a year and a half until the presidential election and I think the democrats are timing out their investigation into Trump’s 2016 activities with the Russians to do maximum damage to his campaign. I’m not sure what the timetable looks like, but that would be my bet. My guess would be that they do impeach him in the House and of course the Senate will not convict him, but he will be damaged. That is what the Republicans did to Hillary with the ten Benghazi investigations that ended without finding anything substantial that she did wrong in the matter.
The US budget deficit is out of control and obscene. We will end this fiscal year with a deficit of nearly a trillion dollars, ten years into the recovery with a still expanding GDP, near record high stock market, low unemployment rate, and low inflation. You are supposed to run large deficits at the bottom of recessions as income tax receipts fall due to layoffs, and government spending or tax cuts are used to stimulate the economy. You are not supposed to run large deficits at the top of expansions when government stimulus should not be needed to drive the economy and everyone has a job. With the total US debt at $22 trillion, I fail to see how this ends well. I don’t know when the tipping point will come, but I believe one is out there. I think the only reason interest rates are not driven higher by the bond traders is that so much European and Japanese debt is at negative interest rates, which steers their bond buyers into the US bond market. As near as I can tell, the multi-year experiment with negative interest rates internationally has been a failure, as all those economies still perform worse than the US economy, and savers the world over are punished. They should have positive rates and let the savers draw a safe monthly income, and maybe they would take a vacation or go eat out a bit more and stimulate their economy.
On the plus side for the market, the Fed Chairman recently said he was open to a rate cut if the economy needed it to continue its expansion and the market has rallied for two weeks. GDP for Q2 is expected to be weaker than the last two years, but positive. Earnings are expected to be flat in Q2 vs. last year, but last year was exceptionally strong. The bond market has been bidding bonds up in value and yields have been falling. That is bad for savers, but good for home buyers as mortgage rates have come down.
That’s my general view of the backdrop we live in.
Market action this week was flat.
Technically, the market is neutral to mildly positive. RSI at the top of the chart is at 58 and flat for the week. Momentum shown by MACD at the bottom of the chart is positive with an upward trend, but it might be flattening out. Price action is positive, but flat for the past week. We are not extended too far above the 50-day moving average, which indicates we don’t need to correct for being over extended.
I think the story of this market is not garnered from the technical right now, rather it is being told by events in the US and around the world. That has me cautious.
What am I doing? Not much. June 21 I have several option contracts expire and I will keep some premiums and have a few stocks called away at nice short term profits (AMD, ILMN, and MRK). I hold lots of cash and will deploy some on pullbacks using low ball buy orders to pick up quality stocks at good prices, but it would take a substantial pullback to get me to commit larger amounts to the market. I don’t like the backdrop. In place of some lowball buy orders, I have been selling Puts, which act like a lowball buy, but you can collect the option premium for committing to a particular buy price by a certain date. I should collect a Put premium on an XOM 6/21 $70 put next Friday (I collected the premium when I sold the Put, but I will no longer be obligated to buy the stock if it falls below 70 after Friday).
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You can use the hyperlink below the chart of the S&P that will open a larger picture of the chart in a separate window. The reader who suggested this wants to look at the chart side-by-side with the blog text so he can look at the chart while reading the text. To do this in Firefox you can open a “private window” from the browser menu and have two instances of Firefox up, then size each window to about half of your monitor size. If you bookmark the link to the chart you can look at it each day of the week to see how the market is progressing to certain milestones. The picture in this post is a static .jpg so it does not update, but if you bookmark the link to the live chart on stockcharts and look at that daily, it does update.
Rich Comeau, Rich Investing