Tuesday, November 14, 2017

The Morning Call--GOP continues to work on increasing the deficit which it growing all by itself

The Morning Call

11/14/17

The Market
         
    Technical

The indices (DJIA 23439, S&P 2584) fought off early weakness to finish up on the day (the relentless drive higher).  Volume soared, though breadth was mixed.  Both remain above their 100 and 200 day moving averages and are in uptrends across all time frames. 

The VIX (11.5) continued to advance, turning in a modest follow through from last Thursday/Friday’s pin action.  Not spectacular, but still notable for being up on an up Market day.  It finished above the upper boundary of its short term downtrend (if it remains there through the close on Wednesday, it will reset to a trading range), above its 100 day moving average (now resistance; if it remains there through the close on today, it will revert to support), above its 200 day moving average (now resistance; if it remains there through the close on Wednesday, it will revert to support) and above the lower boundary of its long term trading range.  As I noted in the Closing Bell, in a three day span, the VIX has gone from threatening a challenge of its long term trading range and making a new all-time low to challenging both moving averages and the upper boundary of its short term downtrend.    I am not sure what the VIX divergence from the equity pin action means.  But I take it as a caution signal.  More follow through.   The July low (8.8) remains the bottom.

The long Treasury recovered modestly from its shellacking on Friday; though certainly not sufficiently to suggest Friday was some one-off random occurrence.  Technically, it closed at roughly the same status as on Friday---below its 100 day moving average (now support; if it remains there through the close today, it will revert to resistance) but above its 200 day moving averages (now support) and above the lower boundaries of its short term trading range and long term uptrend.   Like the VIX, it seems like something could be going on beneath the surface.  We just need more follow through.

            The chase for yield (medium):

The dollar rose fractionally, ending below its 200 day moving average (now resistance), below the upper boundary of its short term downtrend, but above its 100 day moving average (now support) and continues to develop a very short term uptrend.  (Still caught in the narrowing gap between the upper boundary of its short term downtrend and the lower boundary of its very short term uptrend).

GLD was up, closing back below its 100 day moving average, but above its 200 day moving average (support) and the lower boundary of a short term uptrend. 

 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. The technical assumption has to be that stocks are going higher.
           
Trading in UUP, GLD and TLT remain out of sync with themselves, the VIX and stocks, and seem to be pointing at a change in trends---but in different directions.  I am watching for more follow through in the TLT and VIX

I remain uncomfortable with the overall technical picture.
           
    Fundamental

       Headlines

            One datapoint released yesterday: the October budget deficit was larger than anticipated (what else is new).  Nothing overseas.

            ***overnight, German third quarter GDP was up 3.3% versus a 2.6% increase in the second quarter; third quarter UK inflation was below forecasts; October Chinese industrial production and fixed asset investments were below consensus while retail sales were above.

            Both the house and senate started marking up their tax reform legislation; the GOP goal being to have a bill passed by December.  Since this will be a very fluid process, any one day’s news will likely not be that significant in itself---not that there was anything meaningful done yesterday.   The up to date status:

            Bottom line: I don’t want to make too big a deal about a single datapoint, but the budget deficit is illustrative of the issue I have been pounding for years---fiscal policy is a disgrace; by sapping resources to service an increasing level of debt, it is inhibiting economic growth and that is a mild understatement if long rates start back towards the unheard, never before seen level of 5%.  Meanwhile, investors are getting jiggy about adding another $1.5 trillion to that debt while getting nothing simpler or fairer in return.

            For the bulls (medium):

       Subscriber Alert

            Retail stocks continue to get abused in an otherwise euphoric market.  Many have been cut in half price wise.  At the open this morning, the Aggressive Growth Portfolio will Buy a position in  Tractor Supply (TSCO-$61) and the Dividend Growth and High Yield Portfolios will Buy a position in Williams-Sonoma (WSM-$51).

       Investing for Survival
   
            How fortunes are made in the stock market.
           

    News on Stocks in Our Portfolios
 
Home Depot (NYSE:HD): Q3 EPS of $1.84 beats by $0.02.
Revenue of $25B (+8.0% Y/Y) beats by $450M.

Economics

   This Week’s Data

            The October budget deficit was $63.2 billion versus estimates of $58.0 billion.

            The October small business confidence index was reported at 103.8 versus expectations of 105.0.

            October PPI rose 0.4% versus consensus of up 0.1%; ex food and energy, it was up 0.4% versus forecasts of up 0.2%

   Other

            US heavy truck sales up year over year (short):

                Japanese government pension plan now at limit for stock position (medium):
           
The latest from UBS (medium):

            The declining savings rate (medium):

Politics

  Domestic

  International War Against Radical Islam


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