Wednesday, January 4, 2017

The Morning Call--Clear sailing until the inauguration

The Morning Call

The Market

   Yesterday, the indices (DJIA 19881, S&P 2257) recovered a bit of last week’s selloff.  Volume picked up, as did breadth---while it has retreated from extreme levels, it is still in overbought territory.   The VIX fell 8 ½ %, closing back below its 200 day moving average (now resistance) negating last Friday’s upside break, below its 100 day moving average (now resistance) and within a short term downtrend.  The question is, will this set up another challenge of the lower boundary of its intermediate term trading range?
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 {18372-20422}, [c] in an intermediate term uptrend {11643-24493} and [d] in a long term uptrend {5720-20271}.

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 {2145-2489}, [d] in an intermediate uptrend {2015-2617} and [e] in a long term uptrend {881-2419}. 

The long Treasury continued to improve on higher volume, but still ended in a very short term downtrend, in a short term trading range and the 100 day moving average (now resistance) falling further below its 200 day moving average (now resistance).  In other words, TLT has a lot of work to do to overcome a clear and powerful downtrend.

GLD (110.5) is still mirroring TLT---it lifted a bit yesterday but remained in a short term downtrend and below its 100 day moving average (now resistance) which continues to push further below its 200 day moving average (now resistance).   There still is not much stopping it from going to the lower boundary of its intermediate term trading range (100.0).

The dollar reversed Friday’s plunge on decent volume and finished back above the upper boundary of its short term trading range.  I am waiting another day or two before making the call on a reset to an uptrend.

Bottom line: the latest sideways action of equity prices is likely indicative of nothing other than the need to work off an extremely overbought technical condition.  My assumption continues to be that the indices will at least challenge the 20000/2300 levels; and if victorious, there is no resistance between those levels and the upper boundaries of their long term uptrends.  But as you know, I don’t believe any such challenge (of the upper boundaries) will be successful.
            The January barometer (short):



            Yesterday’s US economic news was very upbeat: the December Markit manufacturing PMI, the December ISM manufacturing index and November construction spending all came in above expectations.

            Ditto the overseas data, the December Chinese and UK manufacturing PMI’s were both up, while the December German inflation rate was much higher than forecast.

                        ***overnight, the December eurozone final composite PMI was at the highest level since May 2011, CPI rose to the highest levels in four years; the December Japanese Markit manufacturing PMI came in above estimates.
            In addition, there was a series of positive political/economic news as (1) the senate took a first step in repealing Obamacare, (2) Trump asked DHS for a list of all immigration executive orders imposed under Obama and (3) is jawboning of the auto industry resulting in Ford canceling a big project in Mexico. Of course, there is another side to the Donald’s muscling US companies (1) as I have noted before, we could be trading of one form of regulating for another form and (2) one of the likely overall effects is that it will lead to higher prices in the US.
Trump tells DHS to prepare for border wall construction (medium):

Senate begins process of repealing Obamacare (medium):

Ford cancels $1.6 billion plant investment in Mexico (medium):

            Latest developments on the OPEC production cuts (medium):

            Bottom line: there was nothing in the news yesterday to dampen the Trump euphoria.  While the economic data is less predictable, the optimism over the potential impact of Trump policies will likely remain high until at least his inauguration day.  Then the rubber meets the road and the ugly political sausage making process starts.  The risk being that every possible positive outcome has been priced into prices.  Of course, they could all occur, but there is certainly no room for error.

            The latest from Morgan Stanley (medium):

            Update on valuations:

            My thought for the day:  studies have shown that investors feel losses between two and two-and-a-half times as strongly as gains. That tends to favor inaction over action and the status quo over any alternative. It’s one reason why football coaches are so frustratingly cautious and “go for it” far less often than the data says they should.  Consider this if you remain fully invested.
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   This Week’s Data

            The December Markit manufacturing PMI was reported at 54.3 versus the November reading of 54.1.

            The December ISM manufacturing index came in at 54.7 versus expectations of 53.8.

            November construction spending rose 0.9% versus estimates of up 0.6%.

                Weekly mortgage applications fell 12.0% while purchase applications declined 2.0%.


            Why 4% US GDP growth will remain elusive (medium):

            A damning review of Fed incompetence (medium):

            Quote of the day (short):

            Yuan soars on fears of capital controls (short):




            Le Pen wants France out of euro (medium):

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