Wednesday, November 30, 2016

The Morning Call--Don't worry, be happy

The Morning Call


The Market

The indices (DJIA 19121, S&P 2204) traded in a narrow range yesterday, ending slightly to the upside (thereby remaining above the magical ‘round’ numbers of 19000/2200).  Volume fell; breadth improved somewhat and remained at very overbought levels.  The VIX declined 2%, finishing solidly below its 100 and 200 day moving averages, within a short term downtrend and below the lower boundary of its former very short term uptrend.

The Dow ended [a] above on its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {18074-20134}, [c] in an intermediate term uptrend {11568-24418} and [d] in a long term uptrend {5541-20148}.

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 {2106-2450}, [d] in an intermediate uptrend {1993-2595} and [e] in a long term uptrend {881-2419}. 

The long Treasury was up again, but still closed below its 100 day moving average (now resistance), below its 200 day moving average (now resistance), below a key Fibonacci level, in a very short term downtrend, in a short term trading range and in an intermediate term trading range.  

GLD fell, ending below its 100 day moving average (now resistance), below its 200 day moving average (now resistance) and below the lower boundary of its short term downtrend.  

The dollar fell, finishing back below the upper boundary of its former short term trading range (it had reset on Monday), raising the question of whether the confirmed break was a false flag.  As always, follow through is the key to defining this trend.

Bottom line: the consolidation that began Monday continued yesterday as prices rose but not by much.  Over extended Markets generally correct by either a sharp short term reversal or a period of sideways movement.  The last two day’s pin action suggests that the latter could be occurring; but it is far too soon to make that judgment.  Whichever happens, I am currently assuming that the Averages will eventually challenge the upper boundaries of their long term uptrends.


            The trend towards better economic data continued yesterday: revised third quarter GDP was better than expected, corporate profits were up from the prior report; month to date retail chain store sales and November consumer confidence were up; and the September Case Shiller home price index was in line.

            Overseas stats were mixed: France’s third quarter GDP was in line while October consumer income and spending were ahead of estimates; November EU economic and industrial confidence were below consensus while consumer confidence was in line.

            ***overnight, November EU inflation rose but is still increasing below the 2% goal; the ECB reported that one third of all EU nonperforming loans are held by Italian banks.  In addition, three major UK banks failed the latest ‘stress test’.

            In short, while it is too early to know if either the US or global economies are improving, the numbers are clearly supporting better investor psychology.

            In other issues that I have on the front burner:

(1)   signs of Chinese monetary tightening continue to grow---Chinese bond yields continue to rise (medium):

                 ***overnight, Chinese repo rates soar (short):

(2)   OPEC is more confused than the Fed (medium):

                  Well, maybe not.  But they are still liars and cheats. The latest:

Bottom line: better economic numbers are helping keep investor psychology in the red zone while they remain immune to concerns over lower oil prices, a global dollar shortage and troubles in the Italian banks.  Until something breaks this mindset, stock prices are likely to move up.  How long that lasts?   How high prices rise?  No clue. 

But even if I assume that the ‘Trump revolution’ will lead to a higher secular growth rate of the economy, I can’t get equity valuations even close to current levels.  If I were a trader (which I am not), I might buy an equity Market ETF, using a very tight stop.  But I would under no circumstances buy stocks on the thesis that ‘this time is different’ and stocks are going to sustain some new higher level valuation.  I am much better off being wrong in the short term than being wrong in the long term.  

            The latest from Stanley Druckenmiller (medium):

            My thought for the day: for some reason, investors find a cheap stock appealing apparently because they think it is much easier for a $3 stock to go to $6 than a $50 stock to go to $100.  But a lousy cheap stock has no more intrinsic value than a lousy expensive stock.  No matter what price you pay, the risk/reward equation is the same.

       Investing for Survival
            Making sense when there is no sense to be made.
    News on Stocks in Our Portfolios

   This Week’s Data

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

            November consumer confidence came in at 107.1 versus expectations of 101.0.

            The September Case Shiller home price index rose 0.4%, in line.

                The November ADP private payrolls report showed an increase of 216,000 jobs versus consensus of an additional 160,000 jobs.

            Weekly mortgage applications fell 9.4% while purchase applications dropped 0.2%.

            October personal income was up 0.6% versus forecasts of up 0.4%; personal spending was up 0.3% versus an anticipated up 0.5%.


            In defense of the Fed’s proposed rate hike (medium):

            The latest from Jeremy Siegel (medium):

            Update on auto loans (medium):

            Ed Yardini on trade and tariffs (medium):



How Trump’s new HHS wants to replace Obamacare (medium):

Update on Trump nominees (medium):

US generals have forgotten how to win (medium):


            Nuclear material stolen from Iran could yield a dirty bomb (medium):

            Turkey ups the ante in Syria (medium):

            A closer look at the Italian referendum (medium):

Visit Investing for Survival’s website ( to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

No comments:

Post a Comment