Friday, June 9, 2017

The Morning Call--The fireworks fizzled

The Morning Call


The Market

The indices (DJIA 21182, S&P 2433) were up again but by an even smaller margin than in recent days.  However, the Dow remained below its recent high; meaning that it is still not confirming the S&P’s break above its comparable level.  So, the near term technical issue remains which of these divergent trends will change direction and confirm the other.  I still believe that the Dow will ultimately trade above its high and the Averages will make a run at the upper boundaries of their long term uptrends (now circa 24198/2753).   Volume rose; breadth was mixed.

The VIX (10.1) was down 2 ½ %, ending back below the lower boundary of its intermediate term trading range (if it remains there through the close next Tuesday, it reset to a downtrend) but above the lower boundary of its long term trading range.  However, it is still below its 100 and 200 day moving averages and in a short term downtrend.
The long Treasury was down 0.25%, closing below its 200 day moving average, voiding Tuesday’s break out but above its 100 day moving average and in a very short term uptrend.  The gap between the upper boundary of its short term downtrend and lower boundary of its long term uptrend continues to narrow.

The dollar rallied fractionally, ending in a very short term downtrend and below its 100 and 200 day moving averages.

After failing to break above the upper boundary of its short term trading range on Wednesday, GLD fell further, closing below the lower boundary of its very short term uptrend (if it remains there through the close today, it will negate that trend). It remained above its 100 and 200 day moving averages.

Bottom line: the fireworks many expected as a result of yesterday’s trifecta fizzled, as investors yawned their way through the day. The pin action followed Wednesday pattern but in an even more hesitant manner---stocks and the dollar up, safe havens (TLT and GLD) down.

            There is nothing, technically speaking, to alter my view that the Dow will ultimately confirm the S&P’s move above its prior high and join in a move towards the upper boundaries of their long term uptrends---now circa 24198/2753.
            Market bull Ed Yardini is getting a little cautious (medium):



            One minor release of data yesterday: weekly jobless claims fell more than projected. 

            The foreign stats were more interesting: the May Chinese import/export numbers were strong and first quarter Japanese GDP grew less than expected.  Though they do nothing to alter our ex-EU ‘muddle through’ scenario.
            ***overnight, May Chinese CPI was in line while PPI was slightly below estimates.

            As far as the ‘big three’ events of the day:

(1)   Comey’s remarks provided something for everyone but little that was actionable,

(2)   the ECB followed the Fed’s oft used Alfred Hitchcock strategy---talk up the economy [it raised its growth rate forecast for EU GDP for 2017, 2018 and 2019, cut its inflation outlook for the same period] and then [drumroll, please] left QE unchanged.

(3)   in the UK, the conservative party lost its majority in Parliament, suggesting some political instability [this is the UK, so the statement is relative] near term.  However, it most likely will not stop Brexit but could change its path.

            Other developments included:

(1)   Qatar’s response to Wednesday’s Gulf States ultimatum (medium):

(2)   the house passed its version of Dodd Frank reform.  The Senate will now have to pass its version and then it goes through the reconciliation process.
Bottom line: (1) any thoughts of Trump’s impeachment are likely off the table, at least for the moment, (2) the ECB money machine will continue unabated, (3) while reform of Dodd Frank is my least important item on the Trump/GOP agenda [the ‘too big to fail’ banks are the last group that needs less regulation], the house passage of its version is still a step forward, (4) this week’s move by the EU on NATO and the Mexican/US tentative agreement on a first step in reforming NAFTA are signs of progress in the Trump foreign/trade agenda, in my opinion.

All of the above are likely to keep investor euphoria on the Trump trade ramped up.  My problem is not that I don’t see an improvement in the long term secular growth potential of the US, because I do.  My problems are (1) what is being paid for that improvement and (2) the impact on asset pricing and allocation of the unwinding of global QE.  However, until some factor alters current Market psychology, investors will likely continue to ignore those issues as they have been for the last two years.

Sit back and enjoy it.  Just be sure to be financially and psychologically prepared for this dream world to end.

            The latest from David Rosenberg (medium):

            May’s dividend report (medium):
            My thought for the day: in the last two years, I have spent a lot time worrying about the damage to my/your Portfolio that a Market downturn could cause.  But over the long term, a more insidious source of Portfolio damage is the too frequent trading, commissions and taxes.

       Investing for Survival
            In retrospect, everything is obvious.

    News on Stocks in Our Portfolios

   This Week’s Data


            Update on household wealth (medium):



While this is a politically loaded article by dem sycophant, it does provide a good look at the debate/problem the GOP will face raising the debt limit (medium):

  International War Against Radical Islam


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