Friday, April 21, 2017

The Morning Call--So much for the bears winning

The Morning Call

4/21/17

The Market
         
    Technical

So much for the bears winning.  The indices (DJIA 20578, S&P 2355) staged a moonshot yesterday as hope that the Trump/GOP fiscal program is back on track.  Volume rose, breadth improved, though not as much as I would have thought.   The Dow ended below the upper boundaries of its very short term downtrend, while the S&P closed right its boundary.  The VIX (14.1) fell 5 ¼ %, but remained above the lower boundary of its very short term uptrend, above its 100 day moving average (now support), above its 200 day moving average (now support) and in a short term trading range (it closed above the upper boundary of its former short term downtrend). 

The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {19410-21635}, [c] in an intermediate term uptrend {11963-24812} and [d] in a long term uptrend {5751-23390}.

The S&P finished [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {2269-2602}, [d] in an intermediate uptrend {2092-2696} and [e] in a long term uptrend {905-2591}.

The long Treasury retreated, ending above its 100 day moving average (now support), below its 200 day moving average (now resistance), in a very short term downtrend and in a short term trading range.

GLD rose, closing above its 100 day moving average (now support), above its 200 day moving average (now support), in a very short term uptrend and below the upper boundary of its short term downtrend. 

The dollar rose fractionally, ending above its 100 day moving average (now support), below its 200 day moving averages (now resistance), below the upper boundary of its very short term downtrend and in a short term uptrend.

Oil was spanked once again, despite a barrage of OPEC related happy talk on production cuts.

Bottom line: it sure looks like I could easily go 0 for 2 on short term technical calls:

(1) I thought that the bears were starting to get the upper hand.  While the bulls are not yet in full control, clearly the bears have lost the initiative,

(2) I thought that technicals would give directional guidance before the fundamentals did.  News on fundamentals seem to have provided the impetus for trading in the last three days. 

Until the indices successfully challenge the upper boundaries of their very short term downtrends, I cannot concede that the bulls have regained the upper hand.  However, it will not take much for that to happen. Plus, longer term, given that they are in uptrends in all major timeframes and are above both moving averages, they are already in control.
           
Finally, I note that yesterday’s pin action in the long bond, gold and the dollar did not reflect the sudden revival of the Trumpflation trade.

            The latest from Doug Kass (medium):

    Fundamental

       Headlines

            Yesterday’s economic releases were mixed: weekly jobless claims were above estimates while the leading economic indicators were better than expected---the latter being far more important.

            An interesting indicator (medium and a must read):

            Overseas, the March Japanese trade surplus shrank to 14 month low.

            ***overnight, the April EU flash composite PMI was up versus the March reading; the IMF said that it would provide Greece with bail out money for a year at which time it is hoped that the country will qualify for the current ECB QE related bond purchases.

            None of that mattered. Indeed, I guess that it is an understatement to say that stocks went nuts yesterday on renewed hope of healthcare reform and tax reform.  How long this new round of Trumpflation euphoria lasts will most likely be determined by the bulls**t content in the promises.  Presented with no comment:

(1)   healthcare compromise (medium):

(2)   tax reform (medium):

Further, Trump issued another executive order.  This one orders the Commerce Department to study the impact that large amounts of steel imports have on the US industrial base.  In short, if the US doesn’t do something to maintain steel production could it potentially leave us vulnerable in case of war, trade or shooting?

In addition, the Donald is expected to issue multiple executive orders to day directing Treasury to lower tax regulations and revaluate parts of Dodd Frank.

Finally, while not much has been said about infrastructure spending, plans are in the works.


Bottom line: clearly, investors were joyous over the news yesterday.  But the quality of the follow through by the administration delivering the promised reforms will be what determines the real Market and economic impact.  All we have right now is the promising comments of a couple of well-placed individuals---who I would note made almost diametrically opposed comments as little as a week ago. And not to be too cynical, but Trump’s first 100 days will end soon and this sudden flurry of activity just may be related. That doesn’t mean that circumstances haven’t changed; but there is room for healthy doubt.  Nonetheless, if Trump/GOP are able to deliver on meaningful healthcare and tax reform, it will have an effect on our long term secular economic growth rate assumptions and could impact the short term if improved sentiment stimulates economic activity.  Meanwhile, we can’t ignore what appears to be a near term softening in the economy.

            A message from Paul Tudor Jones (medium):

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            The world’s second most deceptive chart.


    News on Stocks in Our Portfolios
 
Kimberly-Clark (NYSE:KMB) declares $0.97/share quarterly dividend, in line with previous.

Schlumberger (NYSE:SLB): Q1 EPS of $0.25 in-line.
Revenue of $6.89B (+5.7% Y/Y) misses by $100M

Economics

   This Week’s Data

            March leading economic indicators was reported at +0.4% versus forecasts of +0.2%. (today’s must read):

   Other

Politics

  Domestic

CIA/FBI admit that Russia wasn’t the source of WikiLeaks leaks (short):

  International

            China appears to be stepping up the pressure on North Korea:

                And:

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Thursday, April 20, 2017

The Morning Call--For the moment, the bears seem to be winning

The Morning Call

4/20/17

The Market
         
    Technical

The indices (DJIA 20523, S&P 2342) declined a second day, again on mostly bad news.  Volume rose, breadth deteriorated.  Both of the Averages ended below the upper boundaries of their very short term downtrends.  The VIX (14.9) rose 3 ½ %, remaining above the lower boundary of its very short term uptrend, above its 100 day moving average (now support), above its 200 day moving average (now support) and in a short term trading range (it closed above the upper boundary of its former short term downtrend). 
               
The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {19376-21635}, [c] in an intermediate term uptrend {11942-24791} and [d] in a long term uptrend {5751-23390}.

The S&P finished [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {2267-2600}, [d] in an intermediate uptrend {2092-2696} and [e] in a long term uptrend {905-2591}.

The long Treasury retreated, ending above its 100 day moving average (now support), below its 200 day moving average (now resistance), in a very short term downtrend and in a short term trading range.
               
GLD fell, but closed above its 100 day moving average (now support), above its 200 day moving average (now support), in a very short term uptrend. However, it traded back below the upper boundary of its short term downtrend, negating Tuesday’s break. 

The dollar rose, ending above its 100 day moving average (now support), below its 200 day moving averages (now resistance), below the upper boundary of its very short term downtrend and in a short term uptrend.

Oil got hammered on rising inventories and rising US productions stats.

Bottom line: yesterday’s the pin action was a repeat of Tuesday’s---opening flat to down, fading further throughout the day with no meaningful response from the bulls.  The last two trading days have broken the recent pattern of strong opens in one direction then fading that move for the rest of the day.  This change suggests that the bears are winning this standoff at least in the short term.  It is still a bit too soon to tell.  But I will note, that the Dow has traded down below the trading range of the last three weeks; the S&P has not.  Holding me back from making a negative directional call is the fact that long term, the weight of the technical evidence (moving averages and major trends) still favors the bulls. 

    Fundamental

       Headlines

            Only one minor datapoint was released yesterday: weekly mortgage and purchase applications were down.

            ***overnight, the March Japanese trade surplus shrank to 14 month low; Greece achieved a 2016 budget surplus well above EU/IMF requirements, however, skepticism remains.

 There were other news item that seemed to play on investor sentiment:

(1) disappointing IBM quarterly results,

(2) rising gasoline inventories and US shale production [declining oil prices have              not been and apparently still aren’t an unmitigated positive],

       A review of US oil exploration funding plans for 2017 (medium):

(3) a Fed official talked up the notion of a shrinking Fed balance sheet [which I think is long past due, a sentiment likely not shared by the Market in general] and another said that three rate hikes this year is a good idea

     The Fed’s beer googles (medium):

(4) Russian bombers again flew near the Alaskan coastline.

Bottom line: as I noted above, the trading pattern seems to be changing.  For two days in a row, the news flow has been disappointing, stocks sold off and no one was around to buy the dips. I think that the important points are (1) the earnings season has started off not quite as robustly as many had expected/hoped and (2) the economic stats seem to be running out of their initial post-election euphoric steam.  Both could easily change and buyers could easily return to buy the dip.  But for the moment, the buyers seem to have lost some of their earlier conviction. 


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    News on Stocks in Our Portfolios
 
Genuine Parts (NYSE:GPC): Q1 EPS of $1.08 beats by $0.03.
Revenue of $3.91B (+5.1% Y/Y) beats by $60M.

Sherwin Williams (NYSE:SHW) declares $0.85/share quarterly dividend, in line with previous.

C. R. Bard (NYSE:BCR) declares $0.26/share quarterly dividend, in line with previous.

Qualcomm (NASDAQ:QCOM): Q2 EPS of $1.34 beats by $0.14.
Revenue of $6B (+9.1% Y/Y) beats by $90M

Accenture (NYSE:ACN) acquires Belgium agency Kunstmaan for an undisclosed amount.
The company says the acquisition will expand the presence of Accenture Interactive in the Belgian market and strengthen its ability to deliver brand, creative and marketing services to clients.
Sherwin Williams (NYSE:SHW): Q1 EPS of $2.27 beats by $0.22.
Revenue of $2.76B (+7.4% Y/Y) beats by $40M.


Economics

   This Week’s Data

            Weekly jobless claims rose 10,000 versus projections of up 8,000.

            The April Philadelphia Fed manufacturing index came in at 22 versus estimates of 25.5.

   Other

Politics

  Domestic

Quote of the day (short):

Goldman looks at a potential government shutdown, healthcare and tax reform (medium):

Update on Obamacare---or lack thereof (medium):

  International

            North Korea threatens ‘super mighty’ preemptive strike (short):

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Wednesday, April 19, 2017

The Morning Call--The H1-B controversy

The Morning Call

4/19/17

The Market
         
    Technical

The indices (DJIA 20523, S&P 2342) declined yesterday on a mostly bad news day---something new and different for a change.  Volume rose, breadth deteriorated.  Both of the Averages again ended below the upper boundaries of their very short term downtrends.  The VIX (14.4) dropped 1 ½ %, but remained above the lower boundary of its very short term uptrend, above its 100 day moving average (now support), above its 200 day moving average (now support) and in a short term trading range (it closed above the upper boundary of its former short term downtrend). 

The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {19350-21635}, [c] in an intermediate term uptrend {11942-24791} and [d] in a long term uptrend {5751-23390}.

The S&P finished [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {2265-2598}, [d] in an intermediate uptrend {2092-2696} and [e] in a long term uptrend {905-2591}.

The long Treasury jumped 1 ¼% on volume, ending above its 100 day moving average (now support), below, but nearing, its 200 day moving average (now resistance), in a very short term downtrend and in a short term trading range.

            Counterpoint:

GLD rose on volume, closing above its 100 day moving average (now support), above its 200 day moving average (now support), in a very short term uptrend and above the upper boundary of its short term downtrend for a second time (if it remains there through the close on Friday, it will reset to a trading range. 

The dollar was down, ending above its 100 day moving average (now support), below its 200 day moving averages (now resistance), below the upper boundary of its very short term downtrend and in a short term uptrend.

Bottom line: the bulls made a very weak comeback in the face of bad news---the first time this has happened in the last three weeks trading.  Whether they were just a sleep at the switch or this is the sign that they may be losing enthusiasm/buying power is the big question.  As usual, I don’t know the answer.  I do know that, at the moment, there is still no directional bias to the Market short term.  Long term, the weight of the technical evidence (moving averages and major trends) favors the bulls. 

            Watch Fridays and Mondays for a sign of direction (short):

    Fundamental

       Headlines

            Yesterday’s data was mixed: March housing starts and permits were below estimates while month to date retail chain store sales growth picked up and March industrial production was slightly ahead of expectations.

            There was also a couple of earnings disappointments (Goldman and JNJ).  We are now going into the heart of first quarter earnings reports.  General consensus had been for an upbeat season.

            Overseas, March Chinese housing prices rose but at a slower pace than in the prior month.
           
            Other news included:

(1)   more saber rattling, with the Pentagon said to be considering shooting down North Korean missiles and the US having to scramble jets as Russian bombers neared Kodiak Island,

(2)   the Donald issuing another executive orders that calls for the review of the US’s H1-B visa program which gives priority to high skill labor to fill job openings.  The purpose is to insure that US companies aren’t bringing in talent to replace current US workers at a lower wage. 

This is apt to be a bit more controversial than other orders because one of the historic complaints with our immigration system was that the US was letting in millions of illegal, low skill workers who were taking jobs from low/middle income citizens while restricting the entry of  ‘needed’ high skill workers. 

However, recently it appears that US businesses have been gaming the system by bringing in skilled workers under H1-B program and instead of using them to fill ‘needed’ slots instead using them to replace US workers for lower pay.  The controversy being how much truth there is to either case.

(3)   Mnuchin: Trump ‘absolutely not’ trying to talk down the dollar.  Let’s hope that he is right.

Bottom line: as I noted above, the pattern in sentiment seemed to change a tad yesterday.  The bulls did make an attempt to rally after a big down move on bad news; but it was a poor try.  However, one day’s trading doesn’t provide sufficient clarity to alter my point that short term the technicals are more important than the fundamentals is giving clarity to Market direction.  Clearly that could change and indeed almost assuredly will change.  But until we get out of the current tight trading range characterized by bulls buying the dips and bears shorting the rips, I think that the technicals will likely provide the directional information before the fundamentals become obvious.

The latest from David Stockman (medium):
My thought for the day: with the explosion of information on the Internet, there is an illusion that there is an explanation for everything and that the primary task is simply to find that explanation.   As a result, technical analysis is at the bottom of the study list for investors, particularly since the skill often requires them to close their eyes and trust price action. 
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            Preparing for a bear market.

    News on Stocks in Our Portfolios
 
BlackRock (NYSE:BLK): Q1 EPS of $5.25 beats by $0.36.
Revenue of $2.82B (+7.6% Y/Y) misses by $30M.

International Business Machines (NYSE:IBM): Q1 EPS of $2.38 beats by $0.03.
Revenue of $18.16B (-2.8% Y/Y) misses by $230M


Economics

   This Week’s Data

            Month to date retail chain store sales grew faster than in the prior week.

            March industrial production rose 0.5% versus expectations of up 0.4%; capacity utilization came in at 76.1% estimates of 76.0%.

            Weekly mortgage applications fell 1.8% while purchase applications were off 3.0%.

   Other

            Who pays taxes? (short):

            More on auto loans (short):

            Goldman on Trump’s fiscal stimulus plans (medium):

Politics

  Domestic

  International War Against Radical Islam

            More on the Syrian gas attack (medium):

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Tuesday, April 18, 2017

The Morning Call--Low volume, little breadth

The Morning Call

                                                                        4/18/17

The Market
         
    Technical

The indices (DJIA 20636, S&P 2349) rallied hard on Monday, though on shrinking volume (one of the lightest days of the year).  Plus, while breadth improved, it was not by much and certainly didn’t reflect the strong price performance.  Both of the Averages again ended below the upper boundaries of their very short term downtrends.  The VIX (14.6) dropped 8 ¼ %, but remained above the lower boundary of its very short term uptrend, above its 100 day moving average (now support), above its 200 day moving average (now support) and in a short term trading range (it closed above the former upper boundary of its short term downtrend). 

The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {19350-21635}, [c] in an intermediate term uptrend {11942-24791} and [d] in a long term uptrend {5751-23390}.

The S&P finished [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {2265-2598}, [d] in an intermediate uptrend {2089-2693} and [e] in a long term uptrend {905-2591}.

The long Treasury declined, remaining above its 100 day moving average (now support), below its 200 day moving average (now resistance), in a very short term downtrend and in a short term trading range.
               
GLD fell, closing above its 100 day moving average (now support), above its 200 day moving average (reverting to support) and in a very short term uptrend.  Intraday, it traded above the upper boundary of its short term downtrend, but couldn’t sustain the challenge and closed below it. 

The dollar was down, ending above its 100 day moving average (now support), below its 200 day moving averages (now resistance), below the upper boundary of its very short term downtrend and in a short term uptrend.

Bottom line: stocks rebounded yesterday.  That was not too surprising given (1) they had gotten mildly oversold and (2) traders had spent Wednesday and Thursday last week reducing risk in front of a potentially eventful long weekend.  However, the indices remained below the upper boundaries of their very short term downtrends and within a fairly tight three week trading range.  So still no directional bias.  Nevertheless, the weight of the technical evidence (moving averages and major trends) favors the bulls. 

    Fundamental

       Headlines

            Yesterday’s economic releases were negative: the April NY Fed manufacturing index was very disappointing and the April housing index came in below projections.

            Aside from the fact that WWIII didn’t start over the weekend, politics were also downbeat.  Mnuchin said the tax reform would not likely occur by August---though he did suggest that the border adjustment tax was losing support at the White House.

            Bottom line: yesterday was a mirror image of last Thursday.  In the latter case, the headlines were largely upbeat but stock prices sank.  The reverse occurred on Monday---lousy news but a strong Market.

This keeps alive the recent trading pattern, i.e. stocks down on good news and vice versa: ‘we are at one of those points that the technicals are going to provide more information than the fundamentals based on the aforementioned notion that both bulls and bears are viewing those fundamentals within the context of their preconceived constructs---bulls are finding good in bad news and vice versa.  As long as that condition prevails, I am not sure of the informative value of a fundamental development---not because it doesn’t provide information, but because that information is being construed to fit a narrative.  Hence, we are not going to know which piece of information will ultimately trigger capitulation of one side or the other until after major resistance/support levels start getting taken out.’ 

            More on valuations (medium):

            My thought for the day: invest in the Market you have, not the Market that you want.  You may not like or believe in the current Market dynamics, but you have to respect them.

       Investing for Survival
   
            Seven rules for life.

       
    News on Stocks in Our Portfolios
 
W.W. Grainger (NYSE:GWW): Q1 EPS of $2.88 misses by $0.11.
Revenue of $2.54B (+1.2% Y/Y) misses by $20M.

Johnson & Johnson (NYSE:JNJ): Q1 EPS of $1.83 beats by $0.07.
Revenue of $17.77B (+1.7% Y/Y) misses by $240M.

Economics

   This Week’s Data

            The April housing market index came in at 68 versus forecasts of 70.

                March housing starts fell 7.0% versus consensus of a 2.0% decline; permits rose 0.8% versus expectations of up 3.0%.

   Other

            More on unfunded pension liabilities (short):

            Bonus:

            A weak dollar is a weak president (medium):

            Update on big four economic indicators (medium):
           
The growing debt problem (medium):

            Counterpoint (short):

            Restaurant sales in the tank (medium):

Politics

  Domestic

  International

            Two more carrier groups headed for North Korea (short):

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Monday, April 17, 2017

Monday Morning Chartology

The Morning Call

4/17/17

The Market
         
    Technical

            After the S&P’s unsuccessful challenge of the upper boundary of its very short term downtrend week before last, it followed up with a pretty ragged performance last week.  Though I am not trying make too big a deal over this pin action. As I have been pointing out, prices haven’t been able to generate any kind of sustained directional move despite both positive and negative developments that have been significant.   At the moment, I think we have to continue to focus on the long term which clearly shows that the index has a lot of support beneath it in the form of both moving averages and all major trends.  Until those support levels are successfully challenged, the assumption has to be that prices are going higher.



            The long Treasury has pushed out of a four month trading range to the upside.  Notice the price gap down in mid-November 2016.  It is a technical theorem that a gap ultimately gets filled.  At the moment, there seems to be little to prevent TLT to at least accomplish that---which, if that occurs, will put it into a position of challenging its 200 day moving average.



            As you can see, GLD is about to stage a challenge of its short term downtrend.  It has some decent momentum having turned its 100 and 200 day moving averages to support.  If it is successful, then there is little resistance under it reaches the upper boundary of its intermediate term trading range.  If not, its 100 day moving average provides support.



            Last week, the dollar failed in its challenges of its 200 day moving average and the very short term downtrend.  That is not surprising in that having to overcome two resistance levels simultaneously is tough.  Not helping is Trump trying to talk the dollar down; although that clearly isn’t the last word.  At the moment, the boundaries of UUP’s very short term downtrend and short term uptrend are converging.  That is what I am watching for directional guidance.



            It sure looks like complacency is in the rear view mirror.  Last week, the VIX successfully challenged its 200 day moving average (now support) and the upper boundary of a short term downtrend (resetting to a trading range).



    Fundamental

       Headlines

            ***overnight, first quarter Chinese GDP plus March retail sales and factory output were all better than expected.

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            Ten headlines that you will never see in the financial press.
           

    News on Stocks in Our Portfolios
 
Economics

   This Week’s Data

            The April NY Fed manufacturing index was reported at 5.2 versus estimates of 15.0.

   Other

            Americans are hardly overtaxed (short):

            Update on the oil industry [prices] (medium):

            And (medium):

Politics

  Domestic

Quote of the day (short):

  International War Against Radical Islam


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