Thursday, February 23, 2017

The Morning Call--At least the Fed is consistent

The Morning Call


The Market

The indices (DJIA 20775, S&P 2367) turned in a mixed day (Dow up, S&P down)---not that unusual for an overbought Market.  Volume fell, but remained at a high level; breadth was very strong.   The VIX (11.7) was up slightly, but finished below its 100 and 200 day moving averages (now resistance) and in a short term downtrend but is near the lower boundary of its intermediate term trading range (10.3)---leaving complacency at a near record high level.

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 {18804-20862}, [c] in an intermediate term uptrend {11788-24632} and [d] in a long term uptrend {5751-23298}.

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 {2198-2541}, [d] in an intermediate uptrend {2050-2651} and [e] in a long term uptrend {881-2561}.

The long Treasury rose, continuing the process of building a pennant formation, but remained 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 was up fractionally, but closed within a very short term uptrend and above its 100 day moving average (now support).    It finished below its 200 day moving average (now resistance) and within a short term downtrend. 

The dollar fell, ending above its 100 day moving average (now support), its 200 day moving averages (now support) and in a short term uptrend.  

Bottom line: yesterday’s rest by the Averages was pretty benign in the midst of a very overbought condition.  Remember that they did exactly the same thing the last time this occurred; that is, prices consolidated by going sideways in a very narrow range for a time instead declining.  That suggests to me that there remains underlying strength in the Market and that the assumption has to be that the Averages are on their way to challenging the upper boundaries of their long term uptrends. 
            This week in charts (medium):



            Yesterday’s US economic data releases were upbeat: January existing home sales were well ahead of forecast, month to date retail chain store sales growth was above the prior week but weekly mortgage and purchase applications were disappointing.

            Overseas, the stats are bouncing back from last week’s lousy numbers: fourth quarter UK GDP growth was revised higher; February German business confidence was better than expected; January EU inflation was less than anticipated.

            ***overnight, EU and ECB are at odds over Monti Dei Paschi rescue; IMF told Greece that it must make further structural changes before assistance can be provided.

            Under the Wednesday with Trump category, the Donald stated that the budget deficit was out of control.  While I wholeheartedly support that notion, it also reinforces the ‘math’ problem which I have been discussing for months, i.e. you can’t cut taxes, increase spending and reduce the deficit simultaneously.  There are, of course, ways of dealing with the issue like cutting taxes for one constituency while raising them for another (think border tax), reducing current government spending in order to pay for new spending measures or the time proven strategy of saying one thing (cutting taxes, increasing spending and balancing the budget) and doing another (pretend that you are cutting taxes and increasing spending but you don’t or cut taxes, increase spending and vastly expand the deficit).  Any combination of the above could happen but I don’t see the kind of positive economic results about which investors are so jiggy.  

            The minutes from the last FOMC minutes were released.  Again, the Fed did its usual masterful job of its ‘on the one hand, on the other hand’ dialectic but reaching no conclusion.  The media read those minutes as being more hawkish.  But those with money at stake had a different take: TLT was up, the dollar was down and gold was up---all indicative of lower not higher interest rates.  In short, no one with skin in the game believes a word out of the Fed because it has no idea what to do.  This is a good summary of the minutes:

Bottom line: we wait for an economic plan, an Obamacare repeal and replace plan, a possible re-do of Dodd Frank and multiple re-sets of trade treaties.  At this moment, investors are basing their buy/sell decisions on leaks, rumors and suppositions.   Not that possible positive outcomes shouldn’t be taken into consideration in valuing equities.  But stocks are at all-time highs, suggesting that they are priced for perfection.  Read the below links carefully.

            Mnuchin throws cold water on tax plan happy talk (short):

            Update on expected S&P earnings (short):
            The economy, earnings and stock prices---another must read from Jeffrey Snider (medium):

            My thought for the day: a stock doesn’t know you own it, any more than Jennifer Lawrence knows that you think that she is hot.  Successful investors maintain an emotional detachment from what they own.  If you love a stock, it will not love you back and will not reward you for loving it.  That is the whole point of having a Stop Loss Price for every stock in your portfolio---a specific price, written down on paper that you look at every day.

       Investing for Survival
            Consistency and self-delusion

    News on Stocks in Our Portfolios
Hormel Foods (NYSE:HRL): FQ1 EPS of $0.44 misses by $0.01.
Revenue of $2.28B (-0.4% Y/Y) in-line.


   This Week’s Data

            Weekly mortgage applications were down 2.0% while purchase applications fell 3%.

            January existing home sales rose 3.3% versus expectations of up 1.1%.

            Month to date retail chain store sales growth was slightly faster than in the prior week.

            Weekly jobless claims rose 6,000 versus forecasts of a 5,000 increase.

            The January Chicago Fed national activity index came in at -0.5 versus the December reading of +0.18.


            Lies, damn lies and statistics (short):

            Will China’s housing bubble pop? (medium):

                        The cost of a complete crackdown on immigration (short):



The Dodd Frank fiduciary rule (medium):

Why governments leak information (short):

  International War Against Radical Islam

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