Tuesday, November 8, 2016

The Morning Call--Increased certainty over Clinton victory

The Morning Call


The Market

The indices (DJIA 178259, S&P 2131) rallied violently yesterday, apparently because investors believe that Hillary will be the next president.  Surprisingly, volume declined; and while breadth improved, it was not nearly as much as I would have thought given the substantial price rise.  The VIX fell 17%, but still closed above its 100 day moving average (now support), above its 200 day moving average (now support) and in a very short term uptrend.  It did, however, fall back below the upper boundary of its short term downtrend, voiding last Thursday’s break; and it has started to adjust its divergent behavior viz a viz stocks.

The Dow ended [a] right on its 100 day moving average, now resistance;  [b] above its 200 day moving average, now support, [c] within a short term trading range {17092-18693}, [c] in an intermediate term uptrend {11544-24389} and [d] in a long term uptrend {5541-19431}.

The S&P finished [a] below its 100 day moving average, now resistance, [b] above its 200 day moving average, now support, [c] within a short term trading range {1995-2193}, [d] in an intermediate uptrend {1976-2578} and [e] in a long term uptrend {862-2400}. 

The long Treasury declined, closing below its 100 day moving average (now resistance), below its 200 day moving average (now resistance), below a key Fibonacci level and in a developing a very short term downtrend.  Clearly fixed income investors were not nearly as impressed by the prospects of a Clinton presidency as equity investors.

GLD was down 1.8%, finishing right on its 200 day moving average and the lower boundary of its recent very short term uptrend.  So it is near challenging the recent progress that it has made---not a hopeful sign.

Bottom line: so much for the pathetic response to an oversold condition; although as I noted above, yesterday’s moonshot was on declining volume and anemic breadth.  Indeed, the flow of funds indicator and on balance volume barely moved, certainly providing no clue of a 2% Market rally.  On the other hand, both of the indices are back within those trading ranges that prevailed since July; although both remain in very short term downtrends.  I have to admit that I was surprised by the Market’s pin action yesterday; so color me confused.  As always follow through or lack thereof will provide some clarity.


            No economic news either here or abroad yesterday; though we did get the latest consumer credit numbers and they weren’t all that positive.

            Auto and student loans hit all time high (short):

            ***overnight, October EU corporate profits declined, German industrial output fell, UK factory output rose and Chinese exports declined,

            China replaces reform minded finance minister (medium):

            Really yesterday’s only story was the weekend news that Comey announced that there was nothing new in any of the recently discovered Clinton/Weiner emails.  That sparked a ‘thank God it is Clinton’ rally which is about the only thing in the print, internet and television media coverage yesterday.

            Bottom line: I am baffled that a group of folks whose livelihood is at least partially defined by corporate profits could be wee weeing in the pants at the prospect of a Clinton presidency.  You may love her social policies; but she is very likely to be deleterious to earnings.  That said, Wall Street has prospered enormously under a democratic administration for the last eight years (despite lousy corporate profitability); and it is likely that they are anticipating more of the same.  Good for them; but not for you, me and most of the rest of the country.  Sooner or later, that is likely to end.

            Some pundits are saying that yesterday’s rally was because of increased certainty.  So let me get this straight, investors are happy because there is certainty that the taxes are going up, government regulations are going up and the balance in the Supreme Court could be altered for a generation.

Clearly, the bond guys weren’t that enthralled. I am assuming because they believe that government debt and inflation are probably going up---which incidentally haven’t been all that great for profits or P/E’s historically.

            This is not to say that stock prices won’t go higher.  After all, they have achieved ridiculous heights on lousy economic growth, declining earnings, soaring debt levels; so there is no reason that trend won’t continue.

Take the current opportunity to build your cash position by lightening up on your winners and selling your losers.

            My thought for the day: another bad habit of investors is to prepare for the last thing that happened as opposed to what is going to happen next.  For instance, many investors believe that since stock prices skyrocketed in a period of QE, more government spending and more government regulation, that they are sure to continue to soar under the same circumstances.  The joke is that nothing goes on forever and this time is never different.

       Investing for Survival
            How to find the good in a nasty election cycle.

    News on Stocks in Our Portfolios

   This Week’s Data

            The October small business optimism index was reported at 94.9 versus expectations of 94.3.

            The latest from Alan Greenspan (medium):

            Fed’s jobs indicator flashes recession (medium):

            The latest on OPEC (production cuts) (medium):



The legacy of Obama’s Department of Justice (medium):

            US/Russian tensions continue to rise (medium):

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