The Morning Call
7/14/17
The
Market
Technical
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.
Fundamental
Headlines
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):
And:
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.
Investing for Survival
When
knowledge is useless.
News on Stocks in Our Portfolios
Economics
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%.
Other
The
central banks are the bond market (short):
Politics
Domestic
Meanwhile out of
the headlines, Trump’s regulatory/executive reforms are making progress
(medium):
International War Against Radical
Islam
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