Friday, December 9, 2016

The Morning Call--Santa Claus is coming to town

The Morning Call


The Market

The indices (DJIA 19614, S&P 2246) continued their upward moment on huge volume.  Breadth weakened slightly, but remains solidly in overbought territory.   The VIX (12.4) rallied in the second up day in a row, but remained below its 200 day moving average (now resistance) below its 100 day moving average (now resistance) and within a short term downtrend.  This pin action suggests that investors are as busy buying insurance as they are buying stocks, a sign of waning confidence.

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 {18150-20200}, [c] in an intermediate term uptrend {11613-24463} 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 {2118-2462}, [d] in an intermediate uptrend {2000-2602} and [e] in a long term uptrend {881-2419}. 

The long Treasury (118.9) fell 1%, 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 very short term downtrend.  The question remains, will it challenge the lower boundary of its short term trading range (117.3) and the lower boundary of its intermediate term trading range (115.3) or is it attempting to build a base?   (maybe both?) Too soon to know.

GLD fell, ending below its 100 day moving average (now resistance), below its 200 day moving average (now resistance), below the lower boundary of its short term downtrend and back below at a key Fibonacci level---but barely.  That leaves open the question as to whether or not it is stabilizing.

The dollar popped, finishing right on the upper boundary of its short term trading range.  So the challenge of that boundary is back on.  It remains in a strong very short term uptrend and well above its 100 and 200 day moving averages.

Bottom line: the upside momentum continues.  Supported by incredible volume and very strong breadth, the indices seem increasingly likely to challenge the upper boundaries of their long term uptrends---with the caveat that the extraordinary volume could be a sign of a speculative blow off.

Yesterday’s pin action in TLT, GLD and the dollar was a bit of cognitive dissonance in the midst of their attempts to stabilize following big directional moves.  Follow through.

            The incredible shrinking life of Market crashes (short):



            Yesterday was another slow one for US economic releases.  Just a single datapoint---weekly jobless claims declined less than expected.

            Overseas, things were a bit more lively.  November Chinese exports and imports improved slightly and revised third quarter Japanese GDP was much lower than originally reported.

            ***overnight, November Chinese PPI was much stronger than anticipated while CPI was up slightly.

In addition:

(1)   the British parliament voted to proceed with Brexit by March 31, 2017.  I have opined that I couldn’t imagine a country reclaiming its sovereignty as a negative.  Of course, that is a political judgment, not an economic one.  As to the latter, there are lots of opinions, ranging from dire too optimistic about the Brexit’s impact.  I don’t think that anyone has a clue about what the economic effects will be.  But the point here is that this shouldn’t be dismissed until we do know.

(2)   the ECB surprised everyone by announcing that it will begin tapering its bond buying program.  Of course, it won’t happen for a while; and there were enough ‘on the other hands’ in the narrative of the announcement to give it plenty of excuses to not taper.  Indeed, some analysts called it a ‘dovish (non) taper’.  In other words, an extension of the standard central bank double speak that we have grown to love.
(3)   the Chinese imposed additional restrictions on currency transactions.  The struggle is to relieve the downward pressure on the yuan.  The effect on the rest of the globe is a tightening in money supply.

Bottom line: seasonal factors (Santa Claus rally) are adding fuel to the enthusiasm spawned by the Trump election/GOP sweep, which probably means everything will be coming up roses until, at least, the turn of the year.  That is good news for the 50% of my portfolio that is invested.  The other 50% won’t be going up; but it also lets me sleep not having to worry about an extremely overvalued Market.

            To repeat a prior thought: if you are a trader (which I am not), I would play this rally with a Market ETF (VYM, VIG) using a very tight stop.

            The latest on valuations (medium and a must read):

            My thought of the day: many fully invested investors right now are attributing their success to their talent or innate abilities, failing to give enough credit to luck.  This is the same group of folks that when the Market gets hit, blame their losses on bad luck versus their lack of talent or innate abilities.  The truth is that right now, a fully invested investor is most likely extremely lucky.  Why push luck?

       Investing for Survival
            The unbusy manifesto.

    News on Stocks in Our Portfolios
Ecolab (NYSE:ECL) declares $0.37/share quarterly dividend, 6& increase from prior dividend of $0.35.

C.H. Robinson Worldwide (NASDAQ:CHRW) declares $0.45/share quarterly dividend, 4.7% increase from prior dividend of $0.43.


   This Week’s Data


            It is automation not trade that has caused the jobs loss (medium):

            A look at household net worth (short):

            China’s latest move to stem the outflow of yuan (medium):


  International War Against Radical Islam

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