Wednesday, March 30, 2016

The Morning Call---Yellen throws hawks under the bus

The Morning Call


The Market

The indices (DJIA 17633, S&P 2055) bolted higher on Yellen’s comments, though volume remained low; and while breadth improved, it was still mixed.  The VIX (14) fell 9%, coming close to resetting the very short term downtrend that it voided Monday.  While it remains well below its 100 day moving average and within a short term trading range, it is nearing the 10-12 attractive price range.

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 a trading range {15431-17758}, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5471-19343}.

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 trading range {1867-2104}, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {800-2161}. 

The long Treasury jumped 1%, remaining above a Fibonacci support level and is starting to form a very short term uptrend.  

GLD rallied almost 2%.  It has risen enough that it likely takes further weakness off the table.

Bottom line:  the indices closed near the upper boundary of their recent consolidation range.  Given how well they handled their overbought condition amidst negative Fed and economic news, the spark provided by Yellen’s comments is likely to push them to another high and possibly a run at their all-time highs.

            Stock performance in April (short):



            Yesterday’s US economic data was positive: month to date retail chain store sales advanced versus the prior week, March consumer confidence came in ahead of forecasts and the January Case Shiller home price index was higher than expected.  Of course, the latter could be interpreted positively (improving economy) or negatively (higher inflation), although, given Yellen’s comments, she apparently is not that worried about inflation.

            And yes, Janet spoke yesterday.  Anyone following the Market over the past seven years would know by the pin action that her speech was dovish, even if they hadn’t seen or heard any part of it.  I had three major takeaways:

(1)   she, in line with the Fed’s Bugs Bunny communication strategy, cut the legs out from underneath all the hawkish talk last week,

(2)   she hinted that the December rate hike may have been a mistake,

(3)   she is more worried about growth [lack thereof] than inflation, especially as it relates to the global, in particular the Chinese, economy---which goes along with the Mauldin thesis I elaborated on previously.

Goldman’s take (medium):

                  The whole speech if you want to read it:

                  More on negative interest rates (medium):

            Overseas, in testimony to how well QE and negative interest rates impact an economy, Japan reported that February retail sales fell 2.3%.

            ***overnight, February Japanese industrial output fell 6.2%.

Bottom line: the dovish/hawkish dialectic is alive and well and living in the Eccles Building; and its spokesperson is Bugs Bunny.  No matter, Yellen et al seem to remain bullet proof no matter how clueless they sound or act.  I remain convinced that ultimately either the Fed will lose its credibility or investors will recognize that higher stock prices in the face of lower corporate profits doesn’t make sense; but until that occurs, the pattern is that dovish commentary equals higher equity prices.  

In my opinion, the current rally represents an excellent opportunity to raise cash reserves by selling either a portion of your profitable investments and/or sell your losers.

            The latest from Doug Kass (medium):

            More on Market direction (medium):

       Investing for Survival
            You may be a better investor than you think.

    News on Stocks in Our Portfolios
·         Hormel Foods (NYSE:HRL) declares $0.145/share quarterly dividend, in line with previous. (Split Adjusted)
·         Forward yield 1.31%


   This Week’s Data

            Month to date retail chain store sales were stronger than the prior week.

            The January Case Shiller home price index rose 0.8% versus expectations of up 0.7%.

            March consumer confidence came in at 96.2 versus estimates of 94.0.

            Weekly mortgage applications fell 1.0%, purchase applications increased 2.0%.

            The March ADP private payroll report showed jobs advancing by 200,000 versus forecasts of up 203,000; the February number was revised lower.


            Investor denial about China (medium):

            China’s gift to us (medium):

            Stephen Roach on China’s current problem (medium):

            Labor market rigidity and disaffection of muslim youth (short but a must read):

            Does the Saudi pricing strategy for oil make sense? (medium)



Democratic socialism (short):

This on Hillary from my favorite liberal blog (medium):

Fitch downgrades rating on Chicago (medium):

  International War Against Radical Islam

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