Tuesday, May 9, 2017

The Morning Call--Yawn

The Morning Call


The Market

The indices (DJIA 21012, S&P 2399) were very quiet yesterday, though volume was up.  Breadth was mixed.   Both remain above their 100 and 200 day moving averages and the lower boundaries of uptrends across all major time frames---all of which act as support.  Of more immediate importance, they are a short hair away from challenging their former highs (21228/2402).   My assumption is that they will probably make that challenge successful and set their sights on the upper boundaries of their long term uptrend (23500/2620)---which I continue to believe that they will not surpass.

Yesterday’s technical story was the VIX (9.8) getting hammered, closing below its 100 and 200 day moving averages as well as the lower boundary of its intermediate term trading range (if it remains there through the close on Friday, it will reset to a downtrend) and long term trading range (if it remains there through the close next Monday, it will reset to a downtrend). 


The pin action of the long Treasury and the dollar since January has defied the seeming equity thesis of an improving economy and rising rates.  On the other hand, GLD investors are worrying about either higher rates or that it is caught up in current decline in commodity prices.  However, its chart since November (the election) belies the former; so I will be watching to see if this is a leading indicator for TLT/UUP or a false flag.

Bottom line: investors were apparently at ease with the French elections.  The question right now is, are the indices resting in preparation for an assault on their former highs or have they shot their wad?  I think the answer is likely the former, but we won’t know until it happens.
            An Elliott wave practitioner analyzes the current Market (medium):



            There were no economic data releases yesterday; and it will remain a slow week up until Friday. 

Overseas, the stats out of Europe continue positive---March German industrial orders were strong---and out of China continue negative---April exports and imports were below expectations. 

            ***overnight, March German industrial production was better than expected while its trade surplus was slightly less; March Japanese real wages were the lowest since 2015 (how is that ZIRP working for you, Mr. Abe?)

            Bottom line: in short, it was a quiet day for all in what will likely be a quiet week---helped I am sure by congress being on vacation.  We will get load of Fed speak this week, which makes my hair hurt.  The Monday edition featured the Cleveland Fed who echoed the hawkish statement from the last FOMC meeting.  If the rest do the same, the odds of a June rate hike will likely approach 100%.  ‘If’ being the operative word.  

We are in one of those situations where technicals will hold center stage because the news flow will be so scant.  (Of course, for saying that Iran will nuke Saudi Arabia.) So go buy your Mom a great gift and sit back and enjoy the calm.

My thought for the day: I often talk about the importance of diversification to lowering the risk and improving the long term return of a portfolio.  Without getting into the math behind this statement, it is sufficient to say that compound returns over time are a function of average annual returns and the volatility of those returns.  If two portfolios have the same average returns, the lower volatility portfolio will accumulate more wealth over time, other things equal.  Said differently, broad diversification can lead to more consistent returns with lower volatility and greater wealth accumulation.

       Investing for Survival
            Stocks are overvalued.  Now what?


    News on Stocks in Our Portfolios
EOG Resources (NYSE:EOG): Q1 EPS of $0.15 in-line.
Revenue of $2.61B (+93.3% Y/Y) beats by $200M.

FactSet Research Systems (NYSE:FDS) declares $0.56/share quarterly dividend, 12% increase from prior dividend of $0.50.


   This Week’s Data

            The April small business optimism index came in at 104.5 versus estimates of 103.8.


            That Canadian mortgage lender continues to lose deposits (medium):



  International War Against Radical Islam

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