Thursday, January 5, 2017

The Morning Call--The Fed in peak form

The Morning Call


The Market

Yesterday, the indices (DJIA 19942, S&P 2270) moved up again, pressing closer to the (magical) 20000/2300 levels.  Volume declined but is still high.  Breadth was mixed but remains in overbought territory.   The VIX (11.8) fell another 7 ¾ %, closing below its 200 day moving average (now resistance), below its 100 day moving average (now resistance), within a short term downtrend and is now bearing down on the lower boundary of its intermediate term trading range (10.3).
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 {11662-24512} 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 was up again but on much lower volume.  It still ended in a very short term downtrend, in a short term trading range and below the 100 day moving average (now resistance) falling further below its 200 day moving average (now resistance).  TLT still has a lot of work to do to overcome a clear and powerful downtrend.

            And (medium and a must read):

GLD (110.5) continues to mirror TLT, rising but remaining 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 again, finishing right on the upper boundary of its short term trading range.  I am still waiting to make the call on a reset to an uptrend.

Bottom line: 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.
            I am a bit confused by the recent pin action in the bond markets (foreign rates rising, US rates falling) and that’s concerning.
            Seek and destroy trading bots (short):



            It was a slow day for US economic data: mortgage and purchase applications fell while month to date retail chain store and December light vehicle sales were up.

            Overseas, the numbers continued strong: the December eurozone final composite PMI, the December eurozone CPI and the December Japanese Markit manufacturing PMI were all better than expected. 

            ***overnight, the December UK services PMI and the December Chinese services and composite PMI’s were all above their November readings.

The minutes from the last FOMC meeting were also released yesterday; and to be frank, there was an even heavier dose of the usual ‘on the one hand, on the other hand’ dialectic.  What I found particularly confusing is that after begging for a more aggressive fiscal policy to relieve it of the burden stimulating the economy, it is now suggesting that  a Trump fiscal is a potential negative (too inflationary).  Go figure.  Read on and you decide:

As puzzling is that the Fed continues to shrink the money supply which historically has been hawkish.  True, it had injected a lot of liquidity into the system which now it apparently is trying to soak up---and this may just be neutralizing maneuver.  What confuses me is that it fails to address these operations and how they apply on overall monetary policy. 

So the closest I can get to a bottom line is that they remain hopelessly bewildered. 

            Bottom line: this week’s economic numbers, especially from overseas, have been good.  On the other hand, the Fed sounds dovish on interest rates but is acting hawkish on money supply.  Finally, the Trump euphoria, in my opinion, is the having the biggest impact on prices.  As I said yesterday, that will last, at least till inauguration.  ‘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 in.  Of course, they could all occur, but there is certainly no room for error.’
            Dividend stats for 2016 (short):

            More on valuation (short):

            My thought for the day: when an investor makes a decision about the desirability of a stock based all or in part on what they have previously invested (money, time or otherwise), they are suffering from sunk-cost fallacy.  No matter how much you’re down on an investment, if it’s likely to never be recovered, then cut your losses and let it go.
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   This Week’s Data

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

            December light vehicle sales were 18.5 million units versus an anticipated 19.7 million.

                        The December ADP private payroll report showed job increases of 153,000 versus consensus of up 172,000.

                        Weekly jobless claims fell 28,000 versus consensus of a decline to 5,000.


            Trump’s tax plan and the dollar (medium):

            Inflation and Fed policy in 2017 (medium):

            Global debt now 325% of world GDP (medium and a must read):



Dave Barry on our political elite (short):

Schumer on likely Trump nominees to the Supreme Court (short):

            Trump working on reform plans for US intelligence agencies (medium):

                Note: the last president to take on the CIA was Kennedy (after its failed Bay of Pigs operations) and look what happened to him.

  International War Against Radical Islam

            Thursday morning humor (short):

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