Thursday, April 13, 2017

The Morning Call--A day of turnarounds

The Morning Call

4/13/17

The Market
         
    Technical

The indices (DJIA 20591, S&P 2344) broke with their recent pattern, opening down modestly and remaining there.  Both continue to trade below the upper boundaries of their very short term downtrends. Volume was flat; breadth deteriorated.  The VIX (15.7) rose 4 ½ %, ending above the lower boundary of its very short term uptrend, above its 100 day moving average (now support), above its 200 day moving average for a third day (now resistance; if it remains there through the close today, it will revert to support) and above the upper boundary of its a short term downtrend for a third day, resetting to a trading range.  Complacency remains an issue and we may be looking at its demise.

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 {19305-21635}, [c] in an intermediate term uptrend {11936-24785} and [d] in a long term uptrend {5751-23390}.

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 {2261-2594}, [d] in an intermediate uptrend {2087-2691} and [e] in a long term uptrend {905-2591}.

The long Treasury rose on volume, remaining above its 100 day moving average (now support), below its 200 day moving average (now resistance), above a minor resistance level, in a very short term downtrend and in a short term trading range.

GLD was up also on volume, closing above its 100 day moving average (now support), above its 200 day moving average (now resistance; if it stays there through the close on Monday, it will revert to support) and nearing the upper boundary of its short term downtrend. 

The dollar was down, ending above its 100 day moving average (now support), below its 200 day moving averages (now resistance), below the upper boundary of its very short term downtrend and in a short term uptrend.

Bottom line: stocks moved lower without giving investors a roller coaster ride in the process---despite a steady stream of upbeat headlines (China tongue lashing North Korea, Trump backing off on firing Yellen, encouraging a lower dollar [currency manipulation?] and removing the ignominious labels of ‘currency manipulator’ from China and ‘obsolete’ from NATO).  However, the magnitude of the decline provided little directional information, suggesting to me that the sellers were still willing to sell into good news.  So the Averages remain stuck in a fairly tight very short term trading range, reflecting the continuing standoff of the bulls and bears.    

The VIX, gold, TLT and the dollar continue to challenge resistance/support levels, despite a less tense geopolitical atmosphere.  That suggests that perhaps their Tuesday’s pin action could have been pointing to a weak economy and lower interest rates as opposed to reflecting international fears.

            An end to ‘buy the dips’? (medium):
           
            Commodity carnage (short):

    Fundamental

       Headlines

            A couple more secondary economic indicators were released yesterday: weekly mortgage and purchase applications were up while import/export prices were mixed.  The international data was equally uninspiring: March Chinese PPI and CPI were reported below estimates.

            ***overnight, March Chinese imports and exports were stronger than anticipated.

            Geopolitical events and major reversals in Trump policies bombarded the newswires all day:

            The Chinese continue to threaten North Korea regarding missile and bomb tests.  It would appear that the Donald has been persuasive in gaining aid from the North’s primary benefactor.  The question is, what did he have to give up to elicit that help?

            And it didn’t take long to get, at least, part of the answer.  Yesterday, Trump indicated the China would not be labeled a currency manipulator (of course, it hasn’t been for some time.  In fact, in the past year, it has worked to keep the yuan from falling).  In that same WSJ interview, the Donald reversed himself on two other issues.  He said that he liked a weak dollar (supposedly good for trade; but the economic evidence is not that persuasive and in some respects is contradictory) and that he has not decided whether or not to reappoint Yellen (barring an appointment of another Volcker, who cares; the whole lot of them are Keynesian devotees who continually screw up monetary policy).

                        In a second news conference, Trump backed off his earlier statement about NATO being obsolete.

            Secretary Tillerson was in Russia meeting with Foreign Minister Lavrov and Putin on Syria and other issues.  Reviews of the following comments were mixed; but talk about a reversal.  I thought it a welcome change to see Tillerson playing hard ball as opposed wimpy, patronizing performances we had become used to with Kerry.

Bottom line: I think yesterday’s pin action, i.e. stocks down on good news, illustrates the point that I made yesterday: ‘we are at one of those points that the technicals are going to provide more information than the fundamentals based on the aforementioned notion that both bulls and bears are viewing those fundamentals within the context of their preconceived constructs---bulls are finding good in bad news and vice versa.  As long as that condition prevails, I am not sure of the informative value of a fundamental development---not because it doesn’t provide information, but because that information is being construed to fit a narrative.  Hence, we are not going to know which piece of information will ultimately trigger capitulation of one side or the other until after major resistance/support levels start getting taken out.’ 

            My thought for the day: diversification is an important component of investment survival.  The key advantages of diversification are the capture of at least a healthy share of available returns, smoother portfolio performance and (thus) less volatility.  For passive investors, the goal should be the broadest diversification possible: exposure to the entire market---domestic and international stocks, domestic and international bonds, REIT’s, gold.  For them, there is no such thing as too much diversification.   A passive investment approach using low-cost index funds via dollar cost averaging would provide the best investment results for the vast majority of those investors. 

       Investing for Survival
   
            The risk in owning index funds.

       Subscriber Alert

            The stock price of IBM ($170) has risen above the upper boundary of its buy Value Range.  Accordingly, it is being Removed from the Dividend Growth Buy List.  The Dividend Growth Portfolio will continue to Hold IBM.

The stock price of Apple ($140) has risen above the upper boundary of its Buy Value Range.  Accordingly, it is being Removed from the Aggressive Growth Buy List.  The Aggressive Growth Portfolio will continue to Hold AAPL.

         

    News on Stocks in Our Portfolios
 
Qualcomm (NASDAQ:QCOM) declares $0.57/share quarterly dividend, 7.5% increase from prior dividend of $0.53.

Economics

   This Week’s Data

            Weekly jobless claims fell 1,000 versus expectations of a rise of 9,000.

            March PPI declined 0.1% versus estimates of no change; ex food and energy, it was flat versus forecasts of a rise of 0.2%.

   Other

Politics

  Domestic

  International War Against Radical Islam


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