Wednesday, January 25, 2017

The Morning Call---This is not all positive

The Morning Call


The Market

The indices (DJIA 19912, S&P 2280) bounced hard, but remained within the tight range dating back to mid-December.  Volume fell, but remains at elevated levels; breadth improved.   The VIX (11.0) fell 6%, closing below the upper boundary of a very short term downtrend, below its 100 and 200 day moving averages (now resistance), in a short term downtrend and is once again nearing the lower boundary of its intermediate term trading range (10.3).
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 {18560-20600}, [c] in an intermediate term uptrend {11708-24558} 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 {2167-2510}, [d] in an intermediate uptrend {2030-2631} and [e] in a long term uptrend {881-2500}.

The long Treasury fell, closing right on the lower boundary of a five week uptrend, 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).


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 gained slightly, finishing 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: while the Averages remained within the recent tight trading range, their strong performance yesterday suggests that they may have begun another attempt to challenge 20000/2300---which has been my assumption.  I await the results.

After a two day hiatus, TLT, GLD and UUP are back in the correlated price action that existed in the prior weeks.  The difference this time is they are supporting the positive outlook of stocks.

            The latest from John Hussman (medium):



            The US economic data reported yesterday was mixed: month to date retail chain store sales grew at the same pace as the prior week, the January Markit flash manufacturing PMI and the January Richmond Fed manufacturing index were ahead of estimates while December existing home sales (primary indicator) were well below forecasts.

Overseas, the January Japanese Markit flash manufacturing PMI was up versus its December reading.

            Politics continued to dominate the headlines.

            Tuesday with Trump:

(1)   bars EPA from awarding any new contracts or grants.

(2)   signs executive order advancing the construction of the Keystone and Dakota pipelines,

(3)   meets with auto industry execs to encourage auto production in the US

            In addition, Speaker Ryan defended the border tax proposal.  As you know, while I like the goal of reducing corporate taxes, I think this idea a particularly poor way of doing it.  I am not the only one:
            Bury the border adjustment tax (medium and a must read):

            Goldman on the impact of the border tax on the oil industry (medium):

            Protectionism was costly in the past and it won’t be any different in the future (medium)

            Trade and world peace (medium):
            And in an attempt to not be totally left out of the party, Senate democrats proposed a $1 trillion infrastructure bill.  If we believe GOP leaders, that kind of spending is not apt to get congressional approval; although if we believe the Donald’s comments on more infrastructure spending, it could set up an interesting dynamic between the three.  In the end, the magnitude of the federal debt suggests that massive infrastructure spending is unlikely in the absence of offsetting cuts.

Bottom line: the Donald continued on the roll, putting the reins on the EPA and moving the Keystone pipeline forward.  Both part of his campaign promises and both a plus for the economy.  On the other hand, pressuring the car companies to do his bidding is still back door regulating and not good.  To repeat myself, if Trump wants to change the law and gains congressional approval, great.  But I don’t think bullying specific companies adds to this country’s economic growth prospects. 

In addition, the GOP border tax proposal, in my opinion, is a big negative---indeed, it is more of a negative than the EPA restraints and the Keystone pipeline are positives.  The good news is the border tax is still only a gleam in Paul Ryan’s eye.  So, hopefully, it will be dramatically revised or done away with altogether.  

Net, net, so far Trump’s actions contain both pluses and minuses for the prospects for economic and corporate profit growth.  To date, not enough has changed to warrant any revisions to our forecast.  Indeed, the policies most likely to alter our outlook are tax reform and infrastructure spending and we have seen nothing along those lines except the house border tax proposal---which, in my opinion, is a negative.  Hence, our Model’s Fair Value hasn’t changed, it is as yet unclear that the policies needed to make changes will be enacted and most importantly, even if changes do occur in Fair Value, it is highly unlikely that they will be sufficient to get Fair Value remotely close to current price levels.   

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: is a quote from Warren Buffett "Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ."  Successful investors are those who know their limitations, keep their heads cool, and act with discipline. You can't measure that.
       Investing for Survival
            There is no perfect definition of risk.

    News on Stocks in Our Portfolios
            Brown-Forman (NYSE:BF.A) declares $0.1825/share quarterly dividend, in line with previous.

Canadian National Railway (NYSE:CNI): Q4 EPS of C$1.23 beats by C$0.32.
Revenue of C$3.22B (+1.6% Y/Y) beats by C$780M.

            Canadian National Railway (NYSE:CNI) declares C$0.4125/share quarterly dividend, 10% increase, from prior dividend of C$0.375.

Boeing (NYSE:BA): Q4 EPS of $2.47 beats by $0.12.
Revenue of $23.29B (-1.2% Y/Y) beats by $100M.

W.W. Grainger (NYSE:GWW): Q4 EPS of $2.45 beats by $0.09.
Revenue of $2.47B (-0.4% Y/Y) beats by $10M.

United Technologies (NYSE:UTX): Q4 EPS of $1.56 in-line.
Revenue of $14.66B (+0.1% Y/Y) misses by $40M


   This Week’s Data

            Growth in month to date retail chain store was unchanged from the prior week.

            The January Markit flash manufacturing PMI was reported at 55.1 versus December’s reading of 54.2

            December existing home sales decline 2.8% versus expectations of a 1.0% fall.

            The January Richmond Fed manufacturing index came in at 12 versus the prior reading of 8.

            Weekly mortgage applications rose 4.0% while purchase applications were up 6.0%


            The Bank of China continues to ease (short):



            The continuing need for banking reform (medium and a must read):

            US business cycle report (medium):

            The curse of demographics (medium):



Did Obamacare’s expansion of Medicaid save lives? (medium):

  International War Against Radical Islam

Visit Investing for Survival’s website ( to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

No comments:

Post a Comment