Tuesday, May 30, 2017

Tuesday Morning Chartology

The Morning Call


The Market

            The S&P remains above both moving averages and well within uptrends across on timeframes.  In addition, it closed that overhead gap and has broken above its former all time high---though the follow through has not been all that impressive and the Dow has yet to challenge its all-time high.  The latter needs to occur before we can say that a challenge of the upper boundaries of the Averages’ long term uptrend is in the offing.

            Bond investors seem unconcerned with rising inflation, a stronger economy or a tighter Fed.  TLT is trading with a slightly upward bias, trapped between the upper boundary of its short term downtrend and its 200 day moving average on the upside and the lower boundary of its long term uptrend and its 100 day moving average on the downside.  One or the other of these narrowing boundaries will be broken at some point, providing fuel for a move in the direction of the break.

            One guy’s opinion (short):

            Like the bond investors, the gold bugs appear to doubt that rates are going up.  GLD has made a decent recovery from its mid-April sell off, developing a very short term uptrend and resetting its moving averages to support.  Its next test will clearly be the upper boundary of its short term trading range.

            For the trifecta, dollar bettors seem unimpressed with the prospects for an improving US economy or a tighter Fed/higher interest rates.  UUP is in a very short term downtrend and below both its moving averages; not a signal of dollar strength.

            In the wake of a positive equity market, the VIX took a shellacking last week.  It is now well below both moving averages (both now resistance), below the lower boundary of its intermediate term trading range (if it closes there today, it will reset to a downtrend) and below the lower boundary of its long term trading range (if it remains there through the close Friday, it will reset to a downtrend.



Last week’s economic data was about as dismal as it could get.  The stats were overwhelming negative (nine negative, four positive) including the primary indicators (four to one).  The score: in the last 86 weeks, twenty-eight were positive, forty-seven negative and eleven neutral.  That sets me up to revise our short term forecast back down, which I will do this week, if the numbers are poor.  But just to be clear, that doesn’t alter the improved long term secular growth rate assumption in our Model stemming from a less punitive regulatory regime.

                At the FOMC meeting last week, the Fed did what it does best: which is to ignore the data, give an endless ‘on the one hand, on the other hand’ (data dependent) analysis and then conclude that raising rates and beginning to taper its balance sheet by the end of the year is the right policy.  I should note that even the Fed staff pointed out that the lousy first quarter numbers were likely not due to seasonal factors.  But f**k the staff, we got a problem (too easy too long) which we created and now we got to do what we got to do---which is to try to normalize monetary policy and pray it won’t knock the economy and the Markets off track.

Good luck with that, at least with respect to the Markets.  As you know, I believe that QE Infinity (except for QEI) has done little to improve the economy (see above) and so its absence will likely do little to harm it (or in the present case, make any normal slowdown worse).  However, it has served as rocket fuel for the equity markets and want of it will almost surely reintroduce stock prices to gravity.

And just to prove that all central bankers ignore the data and pursue a policy that they think best for the unwashed masses, Draghi stated that the ECB would continue its version of QEInfinity despite the ongoing major improvement in the EU economy.

Bottom line:  the economy appears to be slowing back down, the Fed seems focused on trying to unwind its disastrously over expansive monetary policy and investors don’t give a rat’s ass.  Our Portfolios are 50% cash.

                More on valuation (medium):

       Investing for Survival
Investment/general biases
Anchoring: people tend to focus on the first piece of information given too much when making a decision.  Example: despite what people think, those who go first in a negotiation have the advantage as “the mind tries to make sense out of whatever you put before it.”
    News on Stocks in Our Portfolios
Tiffany (NYSE:TIF) declares $0.50/share quarterly dividend, 11.1% increase from prior dividend of $0.45.

Brown-Forman (NYSE:BF.B) declares $0.1825/share quarterly dividend, in line with previous.

Medtronic (NYSE:MDT): Q4 EPS of $1.33 beats by $0.02.
Revenue of $7.92B (+4.6% Y/Y) beats by $60M.

Hormel Foods (NYSE:HRL): Q2 EPS of $0.39 misses by $0.01.
Revenue of $2.19B (-4.8% Y/Y) misses by $40M.

McDonald's (NYSE:MCD) declares $0.94/share quarterly dividend, in line with previous.

Donaldson (NYSE:DCI) declares $0.175/share quarterly dividend, in line with previous.

Bank of Nova Scotia (NYSE:BNS): Q2 EPS of C$1.62 beats by C$0.06.
Revenue of C$6.58B (-0.2% Y/Y)


   This Week’s Data

            April personal income rose 0.4%, in line; personal spending also increased 0.4%, also in line.




  International War Against Radical Islam

            The Saudi’s are not our friends (medium):

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