Wednesday, May 3, 2017

The Morning Call--Who cares?

The Morning Call


The Market

The indices (DJIA 20944, S&P 2391) lifted modestly yesterday.  Volume rose; breadth improved.   Both remain above both their 100 and 200 day moving averages and the lower boundaries of uptrends across all major time frames---all of which acts as support.  That clearly means that momentum remains to the upside.  So it is resistance that becomes important.  Immediate resistance now exists at their former highs (21228/2402) and ultimately at the upper boundaries of their long term uptrends (23390/2591). 

After trading below 10.0 intraday, the VIX (10.5) managed a 4 ¼ %, increase (a little unusual on an up day).  While it has been trashed of late, selling below its 100 and 200 day moving averages, yesterday it bounced off of the lower boundaries of its short and intermediate term trading ranges---perhaps indicating that it has found support. 

As ebullient as equities’ pin action has been, the investors in the long Treasury (in a no man’s land now, technically speaking), gold (holding price very well), the dollar (weakening) and oil (getting pounded) appear to have doubts about the growing economy, rising interest rates and rising inflation scenario. That doesn’t mean that they are right; but it does give reason to question.

Bottom line: the indices continued to rest after the strong Monday/Tuesday performance, which is normal and suggests nothing directionally.  Their upside is now being marked by their former highs [21228/2402] and the upper boundaries of their long term uptrends while support on the downside exists at their 100 and 200 day moving averages and the lower boundaries of their short term uptrends. 

While I would expect a challenge of the old highs, 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?
            Gap openings (medium):

            Update on margin debt (medium):



            The stats were mixed yesterday: month to date retail chain store sales growth improved over the prior week while April light vehicle sales were disappointing (by far the more important of the two).

            Overseas, the April EU Markit manufacturing PMI rose to a six year high.  There was additional news on:

(1) the Canadian financial difficulties,

(2) the Saudi’s problems with the current oil production cut agreement,

(3) Chinese displeasure with US deployment of a missile defense system in South       Korea.

                        ***overnight, April UK construction PMI was better than expected, while April German unemployment fell.

            Bottom line: I wish I could say that those were the only headlines of the day, but not so.  Much of the day was consumed with the political class arguing over who is getting the better deal in the spending/debt limit legislation; in other words, business as usual.  Generally with our political class, there is a direct correlation between the volume of the rhetoric and the truth (i.e. me thinks the lady doeth protest too much).  By that measure, it would appear that the prize goes to the dems.  Unfortunately, all the whining by the GOP diverts time and energy from getting the real work done: repeal and replace and tax reform.  The voters were promised a new agenda; and, notwithstanding investors relief that the government avoided a shutdown (was that not a plus for the republicans?), Trump (the negotiator)/GOP needs to be focused on pursuing that agenda, not wasting time in sixth grade level arguments over who has the biggest Johnson.

Still as I noted yesterday, this earning season has to date come in ahead of expectations.  Below, I have linked to a great article theorizing that a secular shift has occurred in the level of profit margins.  While I think there may be some validity to it, I don’t believe, that even if it 100% correct, it means that current equity valuations are justified. 

Finally, in honor of the FOMC meeting concluding today, I will bore you by repeating: the Fed has been too easy, missed the window to normalize monetary policy and is now stuck with a massive balance sheet that has produced egregious asset mispricing and misallocation which will have to be reversed---we just don’t know when. 

            This summarizes a very interesting thesis proposed by Jeremy Grantham; that is, that corporate profit margins are less mean reverting than in the past for a variety of reasons---which lead to higher margins on a secular basis along with less volatility.  And that, in turn, leads to a change in the level of equity valuations.  It is an absolute must read article.  Whether you agree or not, it is serious food for thought.

            Update on corporate earnings (short):

            Update on valuations (medium):


My thought for the day:  there are investors who are so bad at the task that they lack the capacity to realize how bad they are.  In a study, researchers from the University of Mannheim showed that investors who earn the lowest returns are the worst at judging their own results. They had literally no idea how bad they were. "The correlation between self-ratings and actual performance is not distinguishable from zero" they wrote.

       Investing for Survival

            A catalog of investing errors.   

    News on Stocks in Our Portfolios
Emerson Electric (NYSE:EMR) declares $0.48/share quarterly dividend, in line with previous.

PepsiCo (NYSE:PEP) declares $0.805/share quarterly dividend, 7% increase from prior dividend of $0.752.

Apple (NASDAQ:AAPL): Q2 EPS of $2.10 beats by $0.08.
Revenue of $52.9B (+4.6% Y/Y) misses by $190M.

Automatic Data Processing (NASDAQ:ADP): Q1 EPS of $1.31 beats by $0.08.
Revenue of $3.41B (+4.9% Y/Y) misses by $10M.


   This Week’s Data

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

            April light vehicle sales were below expectations.

                        Weekly mortgage applications fell 0.1% while purchase applications rose 4.0%.

            The April ADP private payroll report showed job increases of 177,000 versus forecasts of 170,000.


            The decline in global poverty (short):




Visit Investing for Survival’s website ( to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

No comments:

Post a Comment