Wednesday, February 22, 2017

The Morning Call--A rose in their mouth

The Morning Call


The Market

The indices (DJIA 20743, S&P 2365) continue their relentless advance.  Volume fell, but remained at a high level; breadth was very strong and is now in overbought territory.   The VIX (11.5) 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.

            Hedge find liquidity plunges (medium):

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 {5730-23298}.

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 declined and is in the process of building a pennant formation, meaning a near term directional issue is in the process of being resolved.  That said, the majority of its technical levels point down.  It 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.  As I pointed out yesterday, it is trying reverse what has been a lousy chart for the last six months

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

Bottom line: with the S&P’s successful challenge of its 2300 level, the assumption has to be that the Averages are on their way to challenging the upper boundaries of their long term uptrends. 

A positive January indicator trifecta produces excellent results (short):

The long bond and the dollar trade as though the economy will see a significant pickup in growth and the Fed will have to adopt a tighter stance on monetary policy.  I am not quite there given the economy’s erratic progress along with the fact that the Fed is in a perpetual state of confusion and indecision.   In addition, GLD seems to be telling a different story (higher interest rates and a strong dollar usually are negative for GLD).


            Only one US economic datapoint was released yesterday: the February Market flash manufacturing PMI came in below estimates.  On the other hand, the February EU Markit composite, manufacturing and services PMI’s were ahead of expectations.

            ***overnight, fourth quarter UK GDP growth was revised higher; February Geman business confidence was better than expected; January EU inflation was less than anticipated.

            There wasn’t much on the political front either save for the continuing uncertainty about tax and spending policies which get more muddled daily as every member of the ruling class tries to weigh on the six o’clock news.  I know that this is just politics as usual; but deadlock is also politics as usual. 

            Bottom line: none of the above matters.  All that matters is that investors believe that they can fall in a bucket of sh*t and come up with a rose in their mouth.  Until that mentality ends, stocks are going higher.  But caution, overvalued stocks can be hazardous to your financial health.

            More on valuation (short):

My thought for the day:  Discipline always trumps conviction.  No matter how certain you are a particular investment, never fall into the trap of believing that you are smarter than the Market.  If you don’t stay humble, the Market will do it for you.

       Investing for Survival
            The biggest myths in investing, part 4.
    News on Stocks in Our Portfolios
Genuine Parts (NYSE:GPC): Q4 EPS of $1.02 beats by $0.01.
Revenue of $3.78B (+2.7% Y/Y) in-line.


   This Week’s Data

            The February Markit flash manufacturing PMI was reported at 54.3 versus expectations of 55.5.


            Corporate profits and interest rates (medium):

            The misunderstood accounting for trade (short):

            Financial engineering has masked the global economy’s precarious health (medium):




            Split in the administration over foreign policy? (medium):

            Who is contributing how much to NATO? (medium):

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