The Morning Call
2/21/17
The
Market
Technical
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.
Fundamental
Headlines
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)?
Déjà
vu
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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.
Revenue of $3.32B (-0.3%
Y/Y) misses by $120M.
Genuine Parts (NYSE:GPC) declares $0.675/share quarterly dividend, 2.6%
increase from prior dividend of $0.658.
Revenue of $7.28B (+5.1%
Y/Y) beats by $60M.
Revenue of $22.2B (+5.8%
Y/Y) beats by $410M.
Economics
This Week’s Data
Other
Update
on big four economic indicators (medium):
Quote
of the day (short):
More
on student loans (medium):
Politics
Domestic
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.
International War Against Radical
Islam
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