Tuesday, September 12, 2017

The Morning Call--No news is good news

The Morning Call


The Market

The indices (DJIA 22057, S&P 2488) surged yesterday.  Volume rose, though not as much as the price move would suggest; however, breadth was quite strong.  Both remain above their 100 and 200 day moving averages and are in uptrends across all time frames.  The S&P moved through the resistance offered by its former all-time high, though the Dow fell slightly short.  Finally, both gapped up on the open.  As I have noted in the past, most technicians expect those gaps to be filled.

The VIX (10.7) fell 11%, leaving it below the upper boundary of its short term downtrend, below its 100 day moving average (it reverted to resistance on two Friday’s ago, then traded back above it last Tuesday, back below it on Thursday, back above it on Friday and now is back below; so this MA is acting more like a magnet than resistance or support), below its 200 day moving average (if it remains there through the close on Thursday, it will revert to resistance) and below the lower boundary of a developing very short term uptrend. The question as to whether or not the VIX has bottomed clearly remains open.

The long Treasury fell 1 1/8 % (it gapped down on the open) on volume, but still finished above its 100 and 200 day moving averages (both support), the lower boundaries of its short term trading range and its long term uptrend but back below the resistance level marked by its August high.

The dollar was up (a gap 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 six lower lows.
GLD was down (a gap down), but still ended above the lower boundaries of its short term and very short term uptrends and above its 100 and 200 day moving averages (both support).

Bottom line: long term, the indices remain strong viz a viz their moving averages and uptrends across all timeframes.  Short term, they challenged the resistance level marked by their August highs---the S&P succeeding.  All the major indices that I follow experienced gap openings which, technically speaking, tend to get closed, i.e. price reversals that close those gaps.  In addition, yesterday’s price action notwithstanding, the unambiguous performances of TLT, GLD and UUP continue to point at a weakening economy. That is not to insinuate anything directionally; it is just to caution about getting too jiggy about one day’s pin action.

I continue to be uncomfortable with the overall technical picture.


            No US economic data released yesterday---kicking off another slow week except for Friday.  Overseas, Chinese inflation was a bit hotter than expected. 

            ***overnight, as of 6/30/17, US national debt topped $20 trillion versus GDP of $19.2 trillion (remember the Reinhart/Rogoff rule); August UK CPI was higher than estimates; the UN passes watered down North Korean sanctions measure.

            The notable news of the day was the lack thereof.  No North Korean missile shots on Founder’s Day and Hurricane Irma being a lot less damaging than originally anticipated.  To be sure, both are pluses (though I have to ask if a destructive hurricane is an economic positive, why isn’t a less destructive hurricane a negative?)

            China cracking down on North Korean banks (medium):

Bottom line: long term, nothing has really changed regarding the prospects for earnings and dividend growth because North Korea didn’t fire a missile or Irma was less devastating that expected.  Indeed, whether less ruinous or not, the Harvey/Irma combo still wiped out billions in wealth which no amount of government aid or insurance will replace---the money will just get taken out of electorate’s pocket and handed to someone else.  No amount of economic double talk is going to make the net effect a positive.

So the economy is still slowing and will be made worse not better by Harvey/Irma.  The Fed has still inflated asset prices to obscene levels and the hurricanes will only make matters worse as they are likely to give Yellen et al the excuse they need to not do what ultimately has to be done---normalize monetary policy.  I think it no coincidence that Fischer is jumping ship before the consequences of this misguided policy come home to roost.  Of course, as long as the global central banks stay easy, the distortions in asset pricing and allocation can continue.  That is unless a flattening yield curve or a plunging dollar force the Fed to do the unthinkable.

            The best case for the bulls (medium):

            Does Fischer see the handwriting on the wall? (medium):

            BOJ now owns 75% of all Japanese ETF’s (short):

            My thought for the day: buy low and sell high is an old stock market cliché.  But there is truth in it.  Opponents, rightfully so, point out that no one can consistently pick the market lows and market highs.  But it is not necessary to pick the bottom and the top.  If one can get in the vicinity of both, the strategy beats a buy and hold.  A perfect example if the market performance of the last seventeen years.  If an investor had followed the buy and hold strategy, he/she would barely have achieved a positive annual return over that period.  On the other hand, if he/she had sold 25% too soon and bought 25% too late in the two and half market cycles, their performance would have been significantly higher.  I suggest that selling today would be much closer to the top than 25%.  Also the buy/sell decisions are not all or nothing; that is, if half a position is sold, cash is being built in anticipation of the inevitable price mean reversion but the portfolio still benefits from any further increase in prices.

       Investing for Survival
            36 investing truths.


    News on Stocks in Our Portfolios

   This Week’s Data

            The August small business optimism index came in at 105.3 versus expectations of 104.5.


            OPEC reports a production drop in August; but remember, these guys lie a lot (short):



Congress still can’t see the forest for the trees (medium):


            Saudi prince visits Israel (medium):

                        Major parties in Italy seeking a parallel currency (medium):

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