Wednesday, May 17, 2017

The Morning Call--The Market's willing self delusion

The Morning Call


The Market

The indices (DJIA 20979, S&P 2400) were down fractionally yesterday, but still enough that the S&P backed off its all-time high for a second time. Volume was flat; breadth weakened.  Nonetheless, both remain above their 100 and 200 day moving averages and the lower boundaries of uptrends across all major time frames. 

The VIX (10.7) was up 2 ¼ %, leaving it above the lower boundaries of its intermediate and long term trading ranges.  While it remains below its 100 and 200 day moving averages, it still has a gap overhead that would require it to trade at 12.2 to be filled.
The long Treasury (up), the dollar (down) and gold (up) pin action suggested that their investors are either (1) looking for a weakening economy/more dovish Fed or (2) worried about a deteriorating Trump presidency.

Bottom line:  while the S&P failed a second challenge of its all-time high, the retreat was very mild.  That suggests that a third time remains likely.  But I go back to the question, will the Averages fill those gaps below current levels or push through their all-time highs and cover them later?
            Forget what you know (medium):



            Yesterday’s economic releases were mixed.  Two primary indicators were in contradiction: April housing starts were terrible while April industrial production was much better than anticipated.  In addition, month to date retail chain store sales grew faster than in the prior week.  Overseas, April UK CPI and PPI were above consensus.

            ***overnight, April EU inflation rose, in line.  As an aside, with the EU economic data improving and now inflation rising to near ECB objectives, the pressure is sure to start building for the ECB to begin tightening.

            Of course, the news flow is all about the media and the dems smelling (Trump’s) blood in the water.  How anything can get accomplished on his fiscal agenda in this atmosphere seems most unlikely---whatever his degree of guilt, if any, related to the growing number of allegations.

Bottom line: investors seem impervious to anything in the news flow.  All that seems to matter is the Market pin action, in particular, to the high tech stocks.  It is amazing to me that the Averages could rally 15% post-election on the notion that Trump’s fiscal agenda would be a major plus for the economy, then completely ignore what is transpiring in the political arena today.  Nonetheless, this ignorance argues that the indices will successfully challenge their all-time highs and go on to test the upper boundaries of their long term uptrends.

            Stocks are overvalued. The economy continues to slip back toward zero growth.  And somebody needs to take the gun out of the Donald’s hand before he shoots off both feet.

            The CAPE ratio and Market performance (short):

            More on valuations (medium):

            A good summation of where we are in the Market (short):

            My thought for the day: don't assume you are the smartest investor in the Market.  When stocks meet your objectives (Sell Half Price), be willing to trim; when they begin to break down (Stop Loss Price), become defensive; when your reasons for buying have changed and no longer exist (Quality Criteria), be willing call it a day and remove your risk.

       Investing for Survival
            Getting what you need versus what you want.

    News on Stocks in Our Portfolios

   This Week’s Data

            Month to date retail chain store sales grew faster than in the prior week.

            April industrial production rose 1.0% versus forecasts of up 0.4%.

            Weekly mortgage applications were down 4.1% while purchase applications were down 3.0%


            Update on big four economic indicators (medium):

            The other side of the Fed’s balance sheet (medium):

            Update on the derivative holdings in US banks (medium and a must read):

Economic weakness and oil prices (medium):

            More on oil and that OPEC production agreement (medium):

            The Bank of China takes its foot off the brakes (medium):

            How accurate are the government’s stats? (medium):



Offered without comment (medium):

The H1-B scam (short):

  International War Against Radical Islam

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