The indices (DJIA 21553, S&P 2447) were up again yesterday with the Dow (but not the S&P) closing right on the upper end of its recent one month trading range. The question remains whether this rally will fade at the top end of the aforementioned trading range or is a precursor to the resumption of an upward momentum. Either way, the Averages remain above their 100 and 200 day moving averages and in uptrends across all timeframes. So, at the moment, I see nothing, technically speaking, to inhibit the Averages’ challenge of the upper boundaries of their long term uptrends---now circa 24198/2763. Volume fell but breadth improved noticeably.
The VIX (10.0) fell another 3 ½ %, closing below the lower boundary of its intermediate term trading range for the eighth time in the last two months (if it remains there through the close next Tuesday, it will reset to a downtrend) and very near the lower boundary of its long term trading range (9.9). Will eight be a charm?
The long Treasury declined, giving back all of Wednesday’s gains and ending back below its 200 day moving average and the lower boundary of a short term uptrend. I am still not ready to make the call for a change in either trend.
The dollar was up slightly, ending in a very short term downtrend and below its 100 and 200 day moving averages.
GLD was down, again, continuing its disappointing performance.
Bottom line: the Averages remain within a very tight one month trading range, though they appear to be on the verge of challenging the upper boundary and resuming their upward momentum. If this move is based on the expectation of an easier monetary policy due to weaker economic growth and moderate inflation, then this notion is not being shared by bond, dollar and gold investors---but that has been the case for the last month or so.
Still the stock market has been immune to bad news or cognitive dissonance from other markets for a long time. I have no insight into how long this psychology will last; but it seems reasonable to assume that, technically speaking, the indices next big move will be to challenge the upper boundaries of their long term uptrends.
Yesterday’s economic data were mixed: weekly jobless claims fell fractionally, the June budget deficit was larger than May’s and June PPI was up slightly better than forecasts, while ex food and energy, it was fractionally below estimates. Once again though the data flow was yesterday’s least important investment factor.
First, the senate introduced its revised Obamacare bill yesterday. As with almost any piece a major legislation, there was much pissing and moaning about all that is wrong with it (it was tagged as Obamacare lite). And to be sure, it is nothing like what had been promised by the GOP. Indeed, it could hardly be categorized in terms of ‘repeal and replace’. But who amongst us ever thought these clowns would deliver on a campaign promise? Nevertheless, it does make some improvements (more alternatives for consumers, cost cuts); and I suspect over time additional improvements will be made---which is how our system works.
Also notice in the accompanying link outlining the plan, there is not one reference to DOA which in itself is a major improvement in the likelihood of passage. All that said, even if we get a senate version of healthcare reform, it still has to be reconciled with the house bill. So the process is not over by a long shot. Still it trudges on.
In other fiscal news, the CBO released its scoring of the Trump FY2018 budget. While (rightfully so) it did not agree with some of the revenue projections, it did agree that the deficit would begin to shrink as result of spending cuts. Assuming that one believes that the cuts will be made (and that would be questionable assumption, historically speaking), then at least the Donald is making a stab at getting our fiscal house in order. To be sure, much more is needed given the size of both the deficit and the debt; but combined with the effort to reduce costs via executive action, the CBO’s report keeps hope alive that the runaway spending of the last 16 years could be curtailed.
But shrinking revenues and rising costs won’t help (medium):
Bottom line: fiscal policy held center stage yesterday and the news was largely upbeat. Which is not to say that the senate healthcare reform corrects as many Obamacare flaws as many (including yours truly) hoped; but a step forward is better than no step. It is not even to say that this proposed legislation was pass; just that the odds appear to have increased.
In addition, many observers had written off Trump’s initial budget proposal as a joke at the time it was made. The CBO’s scoring belies that judgment. While it questioned the budget’s revenue growth assumptions, it did agree that the spending reductions---meaning that if approved, it would be a first step in curbing the outrageous expansion in spending, something neither Bush nor Obama bothered to do.
So I score the day a plus on fiscal policy.
Earnings season starts today. The mantra from the Street bulls is that stocks are rising not because of bundles of liquidity but because of improving earnings. Expectations are high.
Decoding Yellen’s message (medium):
My thought for the day: when I walk into work every day, my primary concern is where can I be wrong, where can I lose money and what am I going to do in a worst case scenario. I always have a plan to avoid a big loss to insure that I always have lots of chips to stay in the game.
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News on Stocks in Our Portfolios
Qualcomm (NASDAQ:QCOM) declares $0.57/share quarterly dividend, in line with previous.
This Week’s Data
The June budget deficit was $90.2 billion versus $88.4 billion reported in May.
June CPI was flat versus an expected increase of 0.1%; ex food and energy, it rose 0.1% versus estimates of up 0.2%.
June retail sales fell 0.2% versus forecasts of up 0.1%; ex autos, it declined 0.2% versus consensus of up 0.2%.
The central banks are the bond market (short):
Meanwhile out of the headlines, Trump’s regulatory/executive reforms are making progress (medium):
International War Against Radical Islam
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