Friday, January 20, 2017

The Morning Call---Now the rubber meets the road

The Morning Call


The Market

The indices (DJIA 19732, S&P 2263) traded off on higher volume and weaker breadth.   The VIX (12.7) was up another 2%, closing right on the upper boundary of a very short term downtrend and near its 100 and 200 day moving averages (now resistance), and pulled even further away from the lower boundary of its intermediate term trading range (10.3---a mild negative for stocks).  
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 {18517-20557}, [c] in an intermediate term uptrend {11690-24540} and [d] in a long term uptrend {5730-20318}.

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 {2162-2505}, [d] in an intermediate uptrend {2026-2627} and [e] in a long term uptrend {881-2435}.

The long Treasury fell, remaining 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) but is near challenging its recent uptrend. 

GLD declined fractionally, ending 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)---but also finished in a very short term uptrend.

The dollar fell, breaking the recent pattern of acting in reverse of GLD and TLT, and finishing considerably above multiple support levels---so it can fall a lot and not challenge its 100 or 200 day moving averages (now support) or its short term uptrend.   

Bottom line: the Averages remain in the recent very tight trading range.  As long as that is the case, a down day is not really a concern.  Indeed as I noted yesterday, that kind of tight consolidation in which key support levels are not being challenged, suggests that investor enthusiasm is only taking a rest.  Of course, many are trumpeting the ‘sell on the news’ thesis as regards the inauguration.  We will know that by day’s end.  My assumption that the indices will challenge the 20000/2300 level remains intact.

The GLD, TLT and UUP correlations appear to be breaking apart.  Wednesday, they broke their inverse relations to stocks; then yesterday, they all traded in unison.
            The Trump rally versus other post-election gains (medium):



            Yesterday’s economic improved: jobless claims fell, the January Philly Fed index was strong and December housing starts were better than expected though building permits (i.e. future starts) were less.  That evened up this week’s dataflow, making this a neutral week---meaning the Wall Street euphoria is still not showing up in the numbers.

Overseas, following Yellen hawkish comments, the ECB left rates unchanged also keeping its bond purchase program at current levels.  The commentary following the meeting was mostly Draghi whining about the weak EU economy as a rationale for continuing an easy monetary policy.

***overnight, Yellen gives yet another speech---this one with a dovish tone.

***overnight, December UK retail sales fell; fourth quarter Chinese GDP, industrial production and retail were mixed.

The major focus of the day was today’s inauguration and what that will mean in terms of the coming changes.

Bottom line: now the fun begins.  We will soon start to see just how aggressive the Donald is going to be on all the issues that he pounded on during the campaign. While everyone has an opinion on the magnitude and speed of the implementation of change, I am sure that there will be many surprises---both good and bad.  That likely means volatility in the news flow and, for all us investors, securities prices.  Ultimately, what we want to know is how new fiscal/regulatory policies will impact corporate profits and P/E’s (interest rates).  My qualitative optimism regarding the positive outlook for those elements notwithstanding, until there is some clarity on them, I am keeping my quantitative optimism under wraps. 

Whatever occurs, the next year will likely to exciting.  We can only hope that this comes in the form of a major fiscal/regulatory transformation and as well as a more rationale foreign policy. 

Still my task is to quantify the effect of this (hopefully) new economy and build it into our Models.  Unfortunately, at this time, when I plug in many of the optimists’ assumptions about the impact of Trump policies on corporate earnings, our Valuation Model doesn’t produce a Fair Value that comes close to current price levels. Hence, I will continue to Sell Half of any stock that reaches its Sell Half Price and any company that fails to meet the minimum fundamental criteria for inclusion in our Universe.

            My thought for the day: too many investors spend too much of their time worrying about eking out a higher return on their portfolio when that time would be better spent figuring out how to save more money.

       Investing for Survival
            Ten life lessons you learn too late.
    News on Stocks in Our Portfolios
International Business Machines (NYSE:IBM): Q4 EPS of $5.01 beats by $0.13.
Revenue of $21.8B (-1.2% Y/Y) beats by $160M.

Procter & Gamble (NYSE:PG): FQ2 EPS of $1.08 beats by $0.02.
Revenue of $16.86B (-0.4% Y/Y) beats by $90M.

Schlumberger (NYSE:SLB): Q4 EPS of $0.27 in-line.
Revenue of $7.11B (-8.1% Y/Y) beats by $40M.


   This Week’s Data


            Are Trump and the Fed on a collision course? (medium):

            Update on student loans (short):

            No, this is the real update.  The Education Department has been fabricating the numbers (medium and a must read):

            Economic update from our favorite optimist (medium):

            Send this to the ‘lower oil prices are an unmitigated positive’ crowd (short):

            Inflation and oil (short):

            Donald and the dollar (short):




            NATO and its financial obligations (short)

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