Tuesday, March 21, 2017

The Morning Call--It is still not clear sailing

The Morning Call


The Market

The indices (DJIA 20905, S&P 2373) continued to consolidate.  Volume fell; breadth was weaker.   The VIX (11.3) was up slightly, ending below its 100 and 200 day moving averages (now resistance) and in a short term downtrend.  It closed right on the lower boundary of a very short term uptrend for the third day---having challenged it unsuccessfully intraday on each day.  If it holds above that boundary, then I have to take the thesis that the period of complacency could be ending more seriously.
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 {19082-21359}, [c] in an intermediate term uptrend {11884-24736} 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 {2232-2566}, [d] in an intermediate uptrend {2072-2676} and [e] in a long term uptrend {881-2561}.

The long Treasury was up, but ended below its 100 and 200 day moving averages, in a very short term downtrend and near the lower boundary of its short term trading range.  Much of the rest of the fixed income complex was down.

GLD rose, closing above its 100 day moving average (now support).  Nevertheless, it ended below its 200 day moving average (now resistance) and within a short term downtrend. 

The dollar was up fractionally, ending below its 100 day moving average (now resistance), above its 200 day moving averages (now support) and in a short term uptrend.

Bottom line: the Averages are holding their losses to a minimum as they continue their relentless move to the upside.  That said both are close to challenging their very short term uptrends---as long as they remain within these uptrends, the assumption has to be that they are headed for the upper boundaries of their long term uptrends. 



            Only one US economic datapoint was released yesterday: the Chicago Fed national activity report was ahead of expectations.

            No stats from overseas, but there was some notable announcements: Greece said that it will likely miss the deadline for achieving results that would provide for receiving bail out funds; UK PM May triggered Brexit; and the G20 failed to renew pledge to resist all forms of protectionism.  This latter returns investor attention to the heartburn Trump is causing for free trade advocates of which I am one.  Of course, failing to renew a pledge is not the same as actively pursuing tariffs, taxes and competitive devaluations; but it is a step closer.

            ***overnight, February UK inflation came in hotter than anticipated; in fact, it was above the Bank of England’s stated goal.

            This week will be another in which we have to endure multiple Fed speakers trying to put a finer point on last week’s FOMC meeting.  We got off to a roaring start yesterday as Charles Evans struck a slightly more hawkish tone (short):

                The Fed is making it up as it goes along (short):

Bottom line:  to add to the issue of the timing and magnitude of healthcare reform, tax reform and infrastructure spending, now there are (1) at least an initial signal that Trump’s protectionist inclinations are starting to draw concrete responses from our trading partners.  To be sure, the reaction was verbal or lack thereof [G20 nonrenewal of protectionist pledge] and (2) an indication that the Fed may not be as dovish as assumed following last week’s FOMC statement.  If indeed the Fed is more likely to raise rates than currently assumed, that is not good for stocks. 

GOP makes changes to its healthcare bill (medium):

 Granted there is much unknown about how these issues will all play out.  But the point is that there is no more reason for the euphoria about them all ending as currently hoped for than there is that any of the aforementioned problems could lead to disappointments.  In other words, only the positive assumptions are being discounted.

I am not saying that Trump’s fiscal program won’t have a positive impact on the economy and I am definitely not saying that a tighter Fed will lessen that impact.  But I am saying that, at the moment, an element of stock valuation includes a degree of success that ignores any problems, including but not limited to the aforementioned. 

            Mohamed El Erian warns of overconfidence (medium):

            My thought for the day: professional investing is one of the hardest careers to succeed at, but it has low barriers to entry and requires no credentials. That creates legions of "experts" who have no idea what they are doing.  It doesn’t really matter how much experience a money manager has.  You can underperform the market for an entire career. And many have.

       Investing for Survival
            A watched portfolio never performs.

    News on Stocks in Our Portfolios
General Mills (NYSE:GIS): FQ3 EPS of $0.72 beats by $0.01.
Revenue of $3.79B (-5.3% Y/Y) misses by $30M.


   This Week’s Data

            The fourth quarter current account deficit was $112.4 billion versus expectations of $129.0 billion

            Used car prices down most since 2008 (medium):
            Traffic at retailers continues to slow (short):
            OPEC continues to try to jawbone prices up (short):



  International War Against Radical Islam

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