Tuesday, September 26, 2017

The Morning Call--A good use of the Donald's time

The Morning Call

9/26/17

The Market
         
    Technical

The indices (DJIA 22296, S&P 2496) closed down yesterday.  Volume inched higher; breadth weakened further.  Both remain above their 100 and 200 day moving averages and are in uptrends across all time frames. 

The VIX (10.2) was up 7%.  It ended below the upper boundary of its short term downtrend, below its 100 and 200 day moving averages but finished right on the lower boundary of its long term trading range.  The question is, does the bounce signal that the July low was the bottom?

The long Treasury rose on volume, finishing above its 100 and 200 day moving averages (both support) and the lower boundaries of its short term trading range and its long term uptrend.  It is now up three days in a row following the hawkish conclusion of the FOMC meeting.  Some observers are suggesting that TLT is strong not because of a weakening economy but as a safety trade given the current North Korea/Trump threat fest.  Could be.  It is something to watch.

The dollar was up, but remained in short term and very short term downtrends and below its 100 and 200 day moving averages and in a series of seven lower highs.  If TLT as a safety trade is a correct thesis, that UUP would also be showing strength.
           
GLD was up 1% on volume, ending above its 100 and 200 day moving averages (both support) and the lower boundary of a short term uptrend.  Again the issue of a safety trade would also apply here.

Bottom line: long term, the indices remain strong viz a viz their moving averages and uptrends across all timeframes. Short term, they are above the resistance level marked by their August highs, meaning that there is no resistance between current price levels and the upper boundaries of the Averages long term uptrends.

On the other hand, all those gap openings from two Monday’s ago still need to be closed. 

Finally, TLT and UUP investors are not supporting the stock boy’s or the Fed’s scenario of an improving economy/higher rates; though they could be reflective of the safety trade thesis.  On the other hand, if so, it seems like equity prices should be weaker.

I remain uncomfortable with the overall technical picture.
                       
    Fundamental

       Headlines

            Yesterday’s US economic data was mixed: the August Chicago Fed national activity index was disappointing while the September Dallas Fed manufacturing index quite positive.

            Overseas, the September Japanese Markit flash manufacturing PMI was strong while the September German business confidence index was below forecasts.  In addition, Japanese PM Abe is apparently about to order a 2 trillion yen stimulus package.

            Other items

(1)   the GOP didn’t release its tax plan.  That apparently happens on Wednesday via a Trump speech.  However, major provisions were leaked---the details of which I linked to in yesterday’s Morning Call.  Bottom line: it doesn’t appear to be revenue neutral,

(2)   the GOP is still trying to salvage its latest healthcare reform bill.  Skepticism prevails,

***overnight, Susan Collins deep six’s it.

(3)   the Donald suddenly went off message again; this time taking on the NFL.  Whatever, the validity [or lack thereof] of his rant, in my opinion, he has much larger fish to fry than worrying about football players kneeling during the national anthem and conditions under which penalty flags should be thrown.  Every minute he spends dicking around with these issues is a minute not spent on healthcare reform, tax reform and keeping the public safe. 

Bottom line: the economy is not as healthy as the ruling class and media would have you believe.  In my opinion, that doesn’t get reversed by saddling the country (taxpayers) with more debt, however good the intentions.  It also doesn’t help when the president spends his time ragging on the NFL rather than focusing on healthcare, tax reform and working on diplomacy to cool a number of hotspots in the world.  With stock prices already at historical high valuations, in my opinion, the aforementioned does inspire still higher prices.


            My thought for the day:  Investing on the basis that we want to become rich quickly is dangerous and is likely to lead us into taking risks which will almost certainly turn out badly.   The trouble is that we don't know as much as we think we do. We're not very good at processing statistics and we're biased by experience so a particularly vivid or recent memory will be given much more weight than any amount of boring, dry, dull and extremely accurate data. Worse still we simply can't predict the future for better or worse - the CEO of our favorite investment may run off to South America with the CFO and a stack of cash; or a stupid market crash may make wonderful companies available at knockdown prices. Being humble in the face of this isn't cowardice or a cop-out, it's simply straightforward commonsense.

       Investing for Survival
   
            15 risk management rules.


    News on Stocks in Our Portfolios
 
FactSet Research Systems (NYSE:FDS): Q4 EPS of $1.90 beats by $0.01.
Revenue of $326.64M (+13.7% Y/Y) beats by $1.37M.

Hormel Foods (NYSE:HRL) declares $0.17/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

            The September Dallas Fed manufacturing index was reported at 21.3 versus estimates of 12.0.

                        In spite of Hurricane Harvey (medium):
                       

   Other

            From one of the optimists I follow (medium):

            Chinese consumers pile on debt (medium):

            Has the Fed abandoned it reaction function (short):

Politics

  Domestic

Quote of the day (short):

  International War Against Radical Islam


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