Tuesday, January 31, 2017

The Morning Call--Is the Market waking up ?

The Morning Call


The Market

The indices (DJIA 19971, S&P 2280) took a tumble yesterday with the Dow finishing back below 20000.    Volume declined, but remains at elevated levels; breadth was weak.   The VIX (11.8) jumped 12%, still closing below its 100 and 200 day moving averages (now resistance), in a short term downtrend but above the upper boundary of a very short term downtrend.  If it remains there at conclusion of the day, that downtrend will be negated.

The Dow ended [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {18604-20644}, [c] in an intermediate term uptrend {11721-24573} and [d] in a long term uptrend {5730-20736}.

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 {2174-2517}, [d] in an intermediate uptrend {2034-2635} and [e] in a long term uptrend {881-2500}.

The long Treasury declined slightly, closing in a very short term downtrend, near the lower boundary of its short term trading range and below the 100 day moving average (now resistance), falling further below its 200 day moving average (now resistance).  

GLD rebounded but ended 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). 

The dollar fell, but finished above its 100 or 200 day moving averages (now support) and in a short term uptrend.   However, it continues to develop a very short term downtrend and is near its 100 day moving average.

Bottom line: the Averages had their first bad day in three weeks.  Mama said that there would be days like this; but there is nothing unusual.  I can come up with a forward scenario that either this means the end of an unsuccessful challenge of the 20000/2300 levels or that the S&P is simply gathering strength for the next assault.  At the moment, the former has the edge as the most likely; and a few more days of this retreat could portend something more significant.   But let’s not get ahead of ourselves.  Patience.

            Yesterday’s economic news was a bit negative: December personal income rose less than expected while spending was flat (consumers continue the spend more than they earn), the January Dallas Fed manufacturing index was ahead of estimates while December pending home sales were stronger than forecasts.

            Overseas, January EU industrial confidence and economic confidence were better than estimates while services confidence was below; and January German CPI was up 1.9%.

Of course, the latter pushes the ECB in the direction of tightening.  So here are the latest stats on its balance sheet (medium):

            ***overnight, Bank of Japan raises its forecast for GDP growth and inflation; 2016 EU GDP growth was 1.7%, unemployment was down and inflation up; the Greek bailout problem isn’t getting resolved

            Monday with Donald:

(1)   signs executive order that curtails regulation.

(2)   defends executive order on refugees

(3)   puts a gigantic hex on the Market by commenting on how his early moves have led to a ‘massive’ increase.  Those are the kind of statements that come back to bite you.

            However, the overriding theme of the day was the Market’s sudden realization that (1) Trump’s trade moves have negative implications and (2) tax cuts and infrastructure spending may not be coming as soon and to extent as originally hoped. 

Even our resident optimist is a little less so (medium):

            Traders jump on anti-Trump bandwagon.  However, they should be blaming themselves for their own insouciant grasp of reality (short):

            And it just getting worse (medium and a must read):

Bottom line:  is the honeymoon over?  No clue.  But as you know, Trump fulfilling his social agenda aside, I have believed that at some point the negative implications of corporate interventions, talking the dollar down, his anti-free trade policy proposals and the lack of visibility of any tax and infrastructure plans would start to impinge on investor jigginess.  Whether Trump corrects this or the Market returns to ignoring it, I don’t know.  But what I sincerely believe is that, whatever happens, the math has to work.  And right now, it doesn’t.  

            My thought for the day: one of the most common mistakes investors make is assuming that the past performance of a mutual fund is a good indication of its potential.  In fact, the opposite is true, studies have shown that fund managers’ performance is mean reverting, that is, great performance leads to poor performance and vice versa.

            Along that same line, investors are so assume that because the Market has increased at an above for several years, it will continue to do so in the future.  The truth is that the Market has historically advanced at 5-7% annually and the Market fluctuates around that linear progression.  If it gets above the trend line for too long and by too much, it is simply bringing future increases forward to the present.  That almost always leads to mean reversion or, at the least, no additional advance for a long period of time.  Sort of like now.

       Investing for Survival
            Markets are right more often than you think.

    News on Stocks in Our Portfolios
United Parcel Service (NYSE:UPS): Q4 EPS of $1.63 misses by $0.06.
Revenue of $16.93B (+5.5% Y/Y) misses by $80M.

MasterCard (NYSE:MA): Q4 EPS of $0.86 beats by $0.01.
Revenue of $2.76B (+9.5% Y/Y) misses by $30M.

Exxon Mobil (NYSE:XOM): Q4 EPS of $0.41 may not be comparable to consensus of $0.70.
Revenue of $61.02B (+2.0% Y/Y) misses by $1.26B.


   This Week’s Data

            December pending home sales rose 1.6% versus estimates of up 0.6%.

            The January Dallas Fed manufacturing index came in at 11.7 versus the December reading of 14.8.

                The fourth quarter employment cost index was reported at 0.5% versus expectations of 0.6%.

                Month to date retail chain store sales grew at a slower pace than in the prior week.


            Mnuchin nixes bank proprietary trading (medium):



  International War Against Radical Islam

            Did Iran just violate the nuclear deal---again (short):

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