The Morning Call
4/27/17
The
Market
Technical
The indices
(DJIA 20975, S&P 2387) languished yesterday---which is not surprising after
two huge up days. Volume fell; breadth
was mixed. The VIX (10.9) rose, closing below
its 100 day moving average for a third day, reverting to resistance, below its
200 day moving average for a third day (now support; if it remains there
through the close on today, it will revert to resistance) and in a short term
trading range.
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 {19458-21635}, [c] in an
intermediate term uptrend {11994-24843} 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 {2275-2608},
[d] in an intermediate uptrend {2098-2702} and [e] in a long term uptrend
{905-2591}.
The long
Treasury rose, ending above its 100 day moving average (now support), below its
200 day moving average (now resistance), in a very short term downtrend, in a
short term trading range.
GLD was up, closing
above its 100 day moving average (now support), above its 200 day moving
average (now support), in a very short term uptrend and in its short term
downtrend.
The dollar was up,
ending below its 100 day moving average for the second day (now support; if it
closes there through the close on today, it will revert to resistance), 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: the
indices took a breather after two torrid days up, which is normal and suggests
nothing directionally. Another factor
contributing to the muted performance was the ‘sell the news’ reaction to the presentation
of the Trump tax cut.
With the Averages
voiding their very short term downtrends, the upside resistance is now marked
by their former highs [21228/2402] and the upper boundaries of their long term
uptrends. I would expect a challenge of
the old highs (intraday, the S&P made its first challenge yesterday).
The big question
in my mind is, will those gap openings which I have mentioned get closed as
part of a near term correction (which would clearly be the more positive
alternative) or will the Averages continue to rise and it occur on the way down
following a Market top?
Fundamental
Headlines
Only
one economic datapoint release yesterday: weekly mortgage applications rose
while purchase applications fell.
***overnight:
(1) the Bank of
Japan left rates unchanged, raised its economic growth forecast for 2017,
lowered its inflation outlook and said that QE would continue until inflation
reached its 2% objective,
(2) the ECB left
rates unchanged; but the tone of the accompanying policy statement was slightly
more dovish than previous ones.
The
big news was the release of the Trump tax plan which (1) was short on detail
and (2) provided nothing with respect to its impact on the budget deficit. In addition, we don’t know yet how it is
being received in congress. I am sure that
you have been swamped with the details as well as analysis, so I will save you
and me the agony of repetition. However,
if you haven’t heard, here is a decent summary:
And an initial
attempt at scoring its impact on the deficit (medium):
In other fiscal
news:
(1)
the house continues to work on repeal and replace. There are suggestions of a vote as early as
Friday,
(2)
the house is considering a one week extension of the
government funding bill.
(3)
Trump announced that he would terminate NAFTA, then
reversed himself shortly thereafter.
Bottom line: the
tax plan announcement was generally in line with my expectations, which is to
say, a rushed presentation in order to meet the 100 day deadline that merely
provided an opening negotiating position, lacking specifics (in particular with
respect to its revenue neutrality) and
sure to be changed. All the claims of
conferences with house and senate members aside, the absence of details
suggests an absence of agreement.
Meaning, the end result will likely be longer in coming and less
stimulative than implied in the Mnuchin/Cohn presentation.
To be clear,
that doesn’t mean that the final tax plan won’t be a net positive for the long
term secular growth rate of the economy.
It means that once again the Trump euphoria appears to be running way
ahead of itself and that the end results, however upbeat, likely won’t justify
its exaggerated hopes.
My
thought for the day: losers average down losers
More
on valuations (must read):
Investing for Survival
Six
ways to lose all your money in the stock market.
News on Stocks in Our Portfolios
W.W. Grainger (NYSE:GWW) declares $1.28/share quarterly dividend, 4.9% increase from prior dividend of $1.22.
Exxon Mobil (NYSE:XOM) declares $0.77/share quarterly dividend, 2.7% increase from prior dividend of $0.75.
Revenue of $15.32B (+6.2% Y/Y) beats
by $150M.
Revenue of $2.73B (+8.8% Y/Y) beats
by $100M.
Economics
This Week’s Data
March
durable goods orders rose 0.7% versus consensus of +1.1%; ex transportation
orders, they fell 0.2% versus projections of a 0.4% increase.
The
March trade deficit came in at $64.8 billion versus forecast of $65.3 billion;
the improvement was the result of a 1.7% decline in exports versus a 0.7% fall in
imports.
Weekly
jobless claims rose 14,000 versus estimates of being flat.
Other
Oil
prices continue under pressure (short):
Politics
An
interesting study apropos of nothing (short):
http://marginalrevolution.com/marginalrevolution/2017/04/queens-pursued-aggressive-war-policies.html
Canada’s
largest mortgage lender having liquidity problems (medium):
Credit
card charge offs rise (medium):
Domestic
International War Against Radical
Islam
US
test fires an ICBM (short):
Israeli
planes struck Iranian arms depot in Syria (short):
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
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