Thursday, May 18, 2017

The Morning Call--Now what?

The Morning Call


The Market

The indices (DJIA 20606, S&P 2357) got blasted yesterday.  They both (1) closed those gaps on the downside, (2) but had gap openings which creates a flipside equation, i.e. they need to be filled; the issue is the timeframe it occurs within, and (3) are nearing their 100 day moving averages. Volume rose; breadth weakened further.  Nonetheless, both remain above their 100 and 200 day moving averages and the lower boundaries of uptrends across all major time frames. 

The VIX (15.6) was up 46 % (yes, 46%).  But like the indices, while it closed the overhead gap, it created one on the downside.  It also blew through both its 100 (if it remains there through the close on Friday, it will reset to support) and 200 (if it remains there through the close next Monday) day moving averages.
Likewise the trading in TLT (up), the dollar (down) and gold (up) close gaps but created new ones.  While the long Treasury’s pin action made no challenges to resistance/support levels, (1) the dollar’s 200 day moving average reverted to resistance and if it remains at current level at the close today, it’s short term trend will reset from an uptrend to a trading range and (2) GLD traded above its 200 day moving average [if it remains there through the close on Monday, it will revert to support].

Bottom line:  there are always a lot of issues after such a sharp price reversal as we had yesterday.  First, as always is follow through.  Second, the huge gap openings need to be filled; the question is time.  Third, given the lack of volatility of late, yesterday’s move may seem unusual; but in historical context, there is nothing unusual at all.  Fourth, at the moment, there is little danger of a trend reversal.
            What the Market did during Watergate (short):
            You don’t know what a correction is (short):



            Only one minor US datapoint yesterday: weekly mortgage and purchase applications fell.  Overseas, the April EU inflation rate rose and is near the ECB’s stated objective.

            ***overseas, first quarter Japanese GDP rose 2.2% (better than forecast) and April UK retail sales were up more than anticipated.

            The story remains an embattled Trump.  While you wouldn’t know it by the pin action, the level of hysterical rhetoric actually declined somewhat during the day.  Though events seem to be occurring minute by minute---the most important now is the appointment of a special prosecutor for the Russia/Trump connection probe.  That will likely take some of the heat out of this issue, at least for a time, since no one can complain that nothing is being done.  Plus, the new prosecutor is well thought of on both sides of the aisle.  On the other hand, remembering past special prosecutors’ reign, it could prolong the agony.

Of course, that doesn’t mean that Trump has seen the last attack on his actions.  Usually, just when you think things can’t get any worse, they do.  Whatever happens, the most important take away remains how much will these issues delay or destroy the Trump/GOP fiscal agenda.  Almost certainly, it will likely push any passage of repeal and replace and tax reform into 2018; and depending on how these accusations are resolved (i.e. whether or not Trump is found guilty/complicit), they may never get enacted.  With that pleasant thought, the pressure is clearly off to make any adjustments to our long term secular economic growth rate assumptions based on the impact of the Trump/GOP fiscal plan.

And speaking of things not getting any worse (medium):

            My thought for the day: in the game of Texas Hold'um when the right hand comes along you can be "all in" and bet all of your money.   The risk with this, of course, is that if another player calls you and you lose – you are busted.   In investing when you have the right set of environmental ingredients in your favor such as an extreme oversold market condition, panic and fear from investors, deep discounts in valuations, etc. those are times to invest more heavily into equities as the risk of loss is outweighed by the potential for reward because the hand you are holding is a strong one. 
The single biggest mistake that investors make today is they continue to be "all in" on every hand regardless of market conditions.  Risk is only a function of how much money you will lose when, not if, you are wrong.
       Investing for Survival

            Fiduciary responsibility.   

    News on Stocks in Our Portfolios

   This Week’s Data

            Weekly jobless claims fell 4,000 versus expectations of a rise 4,000.

            The May Philadelphia Fed manufacturing index came in at 38.8 versus estimates of 19.6.


            Update on consumer credit (medium):



Quote of the day (short):

  International War Against Radical Islam

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