Tuesday, March 14, 2017

The Morning Call--The sausage making begins

The Morning Call


The Market

The indices (DJIA 20881, S&P 2373) had a quiet but mixed day (Dow down, S&P up).  Volume rose, remaining at a high level; breadth continued to unwind from its overbought condition.   The VIX (11.4) fell 2 ½ %, ending below its 100 and 200 day moving averages (now resistance), in a short term downtrend but in a very short term uptrend---remaining in a rebound off the lower boundary of its intermediate term trading range.   That could be a sign that the high level of complacency is over; but it is too soon to tell.
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 {19017-21283}, [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 {2223-2557}, [d] in an intermediate uptrend {2063-2667} and [e] in a long term uptrend {881-2561}.

The long Treasury was down, finishing right on the lower boundary of its intermediate term trading range---positioning it to make a challenge of that boundary.  It is also below its 100 and 200 day moving averages and in a very short term downtrend.   

GLD rose slightly, closing below its 100 day moving average (now resistance), its 200 day moving average (now resistance) and within a short term downtrend. 

The dollar was up, ending above its 100 day moving average (now support), its 200 day moving average (now support), in a short term uptrend; however, it has failed to sustain a new very short term uptrend.  

Bottom line: to all appearances, the Averages are handling the consolidation from an overbought condition very well. So the assumption continues to be that they are headed for the upper boundaries of their long term uptrends.  However, the pin action in the commodities, oil, gold and bonds continues to deviate from the stronger economy, higher interest rate scenario.



            There were no economic releases either here or abroad yesterday.  Most investor attention was focused on central bank policy with the FOMC meeting this week and stories out of Japan that its bank will begin tapering.  Part of this was a debate over the reasons for the seemingly inconsistent behavior of the bond, dollar and commodities markets. 

            ***overnight, the UK parliament voted to begin Brexit talks; February Chinese retail sales were less than anticipated while industrial output was greater.

            A second development that is commanding increasing notice is the price weakness in the oil market.  This could help explain the weakness in bonds and the dollar.

The oil market is about to get ugly (medium):

            I tol’ you (short):

            Finally, the CBO issued its scoring of the new GOP version of healthcare.  As usual, it created more questions than it answered.  But we knew confusion would reign on the effects of this legislation right up the vote for passage---assuming that occurs.

            Goldman believes that the CBO scoring will delay the vote on Trumpcare---which in turn will delay action of tax cuts.

Bottom line: the news flow has been slow of late, which has likely helped stocks consolidate quietly from an overbought condition.  That may be about to change as the data calendar picks up today and the FOMC starts its meeting.  On the other hand, the approaching storm that is forecast to shut down much of the northeast could slow trading over the next couple of days.  

I continue to question whether the economy is really as strong as it is being portrayed by most Street economists, the Fed and the media.  As you know, I upgraded our short term outlook but have not shared the giddy forecasts that have become the accepted scenario.  I am not arguing that the best case can’t happen; I am arguing that while the economy may get a boost, the timing and magnitude of best case scenario is not nearly as certain as is currently priced into stocks.  Now that the sausage making of reform and repeal of Obamacare, tax cuts and infrastructure spending has begun, it seems likely that the Market will have to reassess the odds of its ‘hopeum’ scenario.  The uncertainty apparent in the bond, oil and currency markets seem to support that notion.

            My thought for the day: during recessions, elections, and Federal Reserve policy meetings, people become unshakably certain about things they know nothing about.

            More on valuations (medium):

       Investing for Survival
            Avoid using these terms.


    News on Stocks in Our Portfolios

   This Week’s Data

            The February small business optimism index was reported at 105.3 versus expectations of 105.0.

            February PPI was up 0.3% versus estimates of up 0.1%; ex food and energy, it was up 0.3% versus consensus of up 0.2%.


            The global debt bomb (medium):



  International War Against Radical Islam

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