Thursday, March 16, 2017

The Morning Call--Everything is awesome

The Morning Call


The Market

The indices (DJIA 20850, S&P 2385) popped yesterday. Volume rose, remaining at a high level; breadth improved.   The VIX (11.6) fell 6 ½ %, ending below its 100 day moving average (now resistance), below its 200 day moving average (now resistance) and in a short term downtrend.  While intraday it traded below the lower boundary of its very short term uptrend, it recovered and closed above that boundary.  As long as this uptrend stays intact, it leaves open the possibility that the recent high level of complacency is over.
The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {19039-21294}, [c] in an intermediate term uptrend {11837-24689} 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 {2226-2560}, [d] in an intermediate uptrend {2067-2671} and [e] in a long term uptrend {881-2561}.

The long Treasury was up another 1 ¼ %, continuing the rebound off of the lower boundary of its short term trading range.  But it remains below its 100 and 200 day moving averages and in a very short term downtrend.  The rest of the fixed income complex rallied strongly.  

GLD rose 1 ¾ %, pushing above its 100 day moving average (now resistance; if it remains there through the close on Friday, it will revert to support).  But it remained below its 200 day moving average (now resistance) and within a short term downtrend. 

The dollar fell 1%, ending back below above the lower boundary of the recently (Monday) reset very short term uptrend.  Judging by yesterday’s strong follow through, it appears that this trend has been successfully challenged.  Supporting that notion, UUP also closed below its 100 day moving average (if it remains there through the close on Friday, it will revert from support to resistance).  It also ended below its 200 day moving average (now support) and in a short term uptrend.

Bottom line: despite the recent pause in the pin action, the Averages remain in uptrends (including very short term uptrends) across all time frames. So the assumption continues to be that they are headed for the upper boundaries of their long term uptrends.  The pin action in the commodities, oil, gold and bonds also reflected the everything is awesome scenario. (economy growing---good for stocks; but little risk of rising rates---good for bonds and gold and bad for the dollar).



            Lots of economic data released yesterday: weekly mortgage and purchase applications were up, the March NY Fed manufacturing index and the March housing market index were both ahead of forecasts while February retail sales and the January business inventory/sales were below.

            The big event of the day was the wrap up of the FOMC meeting.  As expected, it raised the Fed Funds rate by 25 basis points.  The language of the press release and the Yellen news conference was pretty bland---the message being that the Fed believes that the economy will continue to grow and will able to handle its anticipated rate hike with little problem.  Importantly, the language was consistent with public comments of FOMC members over the last couple of weeks---which is different from their usual ‘on the one hand, on the other hand’ narrative.   In short, at the moment, everything is awesome.

            Which, of course, it isn’t.  But here is how Yellen dealt with that issue.

            The text of the Fed release (medium):

            And the dot plot (short):

            ***overnight, Trump released his first budget; and it didn’t disappoint.  Whether it gets enacted is another question.

            Plus while the Bank of Japan left rates unchanged,

            the Bank of China raised them for the third month in a row.

Bottom line:  I noted yesterday that in the last two years, I have continually underestimated the Markets’ willingness to see a silver lining that was not that obvious to me.  And so it continues to be.  Forget rising oil prices, forget the lack of visibility of Trump’s fiscal plan (however, positive it may be if enacted), forget that the Fed has created the gross misallocation of prices and assets.  Today, everything is coming up roses.  So I have to go with my technical bottom line.  That said, if I held any stock that had been a big winner, I would sell a portion of that holding; and I would eliminate all my losers.

            More on valuation (short):
            My thought for the day: thirty years ago, there was one hour of market TV per day. Today there's upwards of 18 hours. What changed isn't the volume of news, but the volume of drivel. 
       Investing for Survival
            Learning to be a good loser.


    News on Stocks in Our Portfolios
Oracle (NYSE:ORCL): FQ3 EPS of $0.69 beats by $0.07.
Revenue of $9.2B (+2.1% Y/Y) misses by $60M.


   This Week’s Data

            January business inventories rose 0.3%, in line; however, sales were up just 0.2%.

            The March housing market index was reported at 71 versus consensus of 66.
            February housing starts rose 0.3% versus expectations of up 0.2%.

            Weekly jobless claims fell 2,000 versus estimates of 1,000 decline.

            The March Philadelphia Fed manufacturing index came in at 32.8 versus forecasts of 30.0.


            Atlanta Fed lowers its first quarter GDP growth estimate to 0.9%.

            Growing student loan defaults (short):



  International War Against Radical Islam

            Saudi prince says Trump is a friend to muslims; that travel ban targets radicals not all muslims (short):

            ***overnight, the Dutch left the center right party in control.

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