Tuesday Morning Chartology
Clearly, nothing in this chart to suggest that the S&P isn’t going higher. As I have noted previously there are no resistance levels between current prices and the upper boundary of its long term uptrend.
The long bond is in a narrowing very short term trade range, providing little information about direction near term. However, the longer term indicators (100 and 200 day moving averages) are pointing down (higher yields). If the economy is improving and Yellen is telling the truth (about being more hawkish), the assumption has to be that prices are going down more.
GLD is the only chart where we see the violation of something other than a very short term trend (100 day moving average). In this case, it doesn’t mean that a significant directional change is in the offing; but the possibility is there.
The dollar isn’t acting all that great of late; though it still is heading higher based on its moving averages and the short term trend. Like the long bond, that makes sense if the economy is improving and the Fed is moving rates higher.
The VIX remains in the cellar, indicating extreme complacency. To be fair, this can go on for a long time---and, indeed, it already has. But it is at current levels that the Market historically experiences sell offs. But it is not a timing indicator; it is a pricing indicator.
Bottom line: the assumption remains that the Averages will attempt a challenge of the upper boundaries of their long term uptrends. On the one hand, I don’t believe that challenge will be successful; on the other, there is enough for a trade, if you have nerves of steel.
Last week’s US economic datapoints were slightly weighed to the positive while the primary indicators were even; so I am calling it a plus. That makes a three week string of good stats and continues to support the notion that the post-election euphoria is starting to show up in the numbers. The score: in the last 72 weeks, twenty-four were upbeat, forty-two negative and six neutral.
Yellen did her periodic Humphrey Hawkins testimony to congress. In it, she sounded more hawkish but with the usual ‘on the one hand, on the other hand’ chicken sh*t Fed speak. The Market raised the odds of multiple interest rate increases in 2017. I will believe it when I see it. That said, my thesis is that it won’t materially impact the economy (because all the QE and ZIRP did little to help it) but will prove lethal to equity prices.
Overseas, the numbers were mostly poor for a second week in a row. This interruption of what had been a favorable turn in the stats dims the light on the prospects of upgrading our ‘muddle through’ scenario; though, it is not off the table yet. Further the ECB sounded dovish in its latest statement---which is nothing new and I don’t think that it necessarily means that it reads the economic tea leaves as negative. However, if both the Fed and the ECB’s comments are truly indicative of future actions, it is a set up for turmoil in the currency markets and more potential accusations from Trump on currency manipulations.
***overnight, the February Markit EU composite, manufacturing and services PMI’s were all above forecast.
In other developments, the IMF and EU indicated that they would likely not reach an agreement on the Greek bailout by the deadline this week; this prompted a run on the Greek banks.
Bottom line: the economic data paints picture a good deal less positive than is available in the current Street narrative. Of course, the latter could prove to be correct---but that scenario assumes a lot ‘on the come’. That said, I continue to believe the course of the economy is much less important to ultimate equity valuations than Fed policy. If it gets more aggressive in raising rates/slashing its balance sheet, then that will likely be the trigger for mean reversion.
How one bank got to the conclusion that the Market is fairly valued (medium)?
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News on Stocks in Our Portfolios
T. Rowe Price (NASDAQ:TROW) declares $0.57/share quarterly dividend, 5.6% increase from prior dividend of $0.54.
Coca-Cola (NYSE:KO) declares $0.37/share quarterly dividend, 5.7% increase from prior dividend of $0.35.
V.F. (NYSE:VFC): Q4 EPS of $0.97 in-line.
Tiffany (NYSE:TIF) declares $0.45/share quarterly dividend, in line with previous.
Genuine Parts (NYSE:GPC) declares $0.675/share quarterly dividend, 2.6% increase from prior dividend of $0.658.
Medtronic (NYSE:MDT): FQ3 EPS of $1.12 beats by $0.01.
Home Depot (NYSE:HD): Q4 EPS of $1.44 beats by $0.11.
This Week’s Data
Update on big four economic indicators (medium):
Quote of the day (short):
More on student loans (medium):
Update on repeal and replace Obamacare (medium):
Update on the Tax cut and the border tax (medium):
As most of John Mauldin’s letters are, this one on the implications of the border tax is long; but it does provide a very clear analysis.
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