Wednesday, March 29, 2017

The Morning Call--Was Ryan blowing smoke up our skirts?

The Morning Call


The Market

The indices (DJIA 20701, S&P 2358) were strong yesterday.  Volume rose; breadth improved.   The VIX (11.5) fell 8 %, ending right on the lower boundary of its very short term uptrend, below its 100 day moving average (reconfirming resistance), below its 200 day moving average (now resistance) and in a short term downtrend.  If it breaks that very short uptrend, complacency will be back.
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 {19159-21431}, [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 {2242-2575}, [d] in an intermediate uptrend {2077-2681} and [e] in a long term uptrend {881-2561}.

The long Treasury was down, but remained above its 100 day moving average (now support), below its 200 day moving average (now resistance), in a very short term downtrend and retreated off a minor resistance level
GLD also fell, finishing above its 100 day moving average (now support), below but near its 200 day moving average (now resistance) and within a short term downtrend. 

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

Bottom line: the indices followed through Monday’s intraday reversal decisively to the upside.  However, they remain within developing very short term downtrends, so the question remains, was the recent downdraft part of a consolidation move or marked a change of direction.  We wait to see. 

            April is the best stock performance month of the year (short):



            There was flurry of US economic datapoints released yesterday: weekly retail chain store sales growth fell, home prices rose while the March Richmond Fed manufacturing survey and March consumer confidence were very strong.  Nothing overseas.

            The notable difference in hard and soft data trends (short and a must read):

            The last time investors felt this good about stocks (short):

            ***overnight, UK formally started the Brexit process.

            In Washington, Trump continued his deregulation drive by signing executive orders rolling back Obama’s Clean Power Plan.  Much of the plan is focused on coal as an energy source which is currently being rapidly replaced by cheaper and abundant natural gas.  That trend is not likely to be reversed.  So the overall impact may not be as dramatic as it sounds. However, this is still another small step in getting government regulatory burden off the back of business.

            In addition, Paul Ryan held a news conference and stated that (1) plans to repeal and replace Obamacare are not dead and (2) work is going full steam ahead on tax reform.  That more positive stance seemed to encourage the devotees of the Trump trade.  We can only hope that this not just political bulls**t.

            Finally, Fed Vice Chair Fischer (a Fed hawk) did an interview in which he seemed to be in line with hiking rates twice this year rather than his recent statement that three increases would be appropriate.  He attributed his more dovish stance to the failure to repeal Obamacare.  Investors seemed very pleased.
            Bottom line: given yesterday’s positive flow of events (good numbers, less regulation, upbeat fiscal commentary and dovish Fed), investors seemed to regain some of their optimism.  If I look for a key in yesterday’s developments, I would say (1) the stat that seemed to get investors jiggy was the very positive consumer confidence reading; however, this datapoint has historically been a leading/coincident indicator of market tops/bottoms, (2) Trump’s deregulation efforts are not new news, (3) neither is an easier Fed, so (4) what weighs heaviest for me is how much substance there is in the Ryan statement.  If he is signaling that the house is truly trying to compromise on tax reform and perhaps a re-do of healthcare reform, then the resurgence in the post-election euphoria may very well have some legs.  Otherwise, I think that investors are likely jerking themselves off.

            A review of the trend in corporate earnings (medium):

            The latest from Doug Kass (medium):
            Happy endings (short):
My thought for the day: the book Where Are the Customers' Yachts? was written in 1940, and most investors still haven't figured out that financial advisors don't have their best interest at heart.
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    News on Stocks in Our Portfolios

   This Week’s Data

            Weekly retail chain store sales grew considerably less than in the prior week.

            The January Case Shiller home price index rose 0.9% versus estimates of up 0.8%.

            March consumer confidence was reported at 125.6 versus expectations of 113.8.

            The March Richmond Fed manufacturing index came in at 22 versus forecasts of 15.

                        Weekly mortgage applications fell 0.8% while purchase applications rose 1.0%.


            The other side of household debt (short):

            More on auto loans (short):

            Expectations for US GDP growth in the first quarter (medium):



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