Thursday, November 30, 2017

The Morning Call--The tax bill is junk legislation

The Morning Call


The Market

            The indices (DJIA 23940, S&P 2626) had another mixed day (Dow up, S&P down, though not by much).  Volume was up and breadth improved.  The bottom line remains that both of the Averages continue to trade above their 100 and 200 day moving averages and are in uptrends across all time frames---with the assumption being that stock prices are going higher.
The VIX (10.7) was up another 6 ½%, closing above the lower boundary of its long term trading range, above its 200 day moving average (now resistance; if it remains there through the close next Monday, it will revert to support) and below its 100 day moving average (now resistance). 

The long Treasury spiked 1% on heavy volume, ending below the lower boundary of its newly developing very short term uptrend, right on its 100 day moving average (now support), above its 200 day moving average (now support) and above the lower boundaries of its short term trading range and long term uptrend.   This is the first crack since late October in the bond guys’ weak economy, tighter Fed narrative.

The dollar was down one cent, finishing below its 100 and 200 day moving averages (now resistance) and solidly within a short term downtrend and within a developing very short term downtrend---no crack here.

            Gold was off ½ %, though it remained above its 100 day moving average for the third day, above its 200 moving average (now support) and in a short term uptrend.  GLD moved in sync with TLT.

Bottom line: hasn’t changed---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.  If you own enough cash to sleep at night, lay back and enjoy it.
Trading in UUP, GLD and TLT are back out of sync with themselves (sluggish economy, weak interest rates) and with the VIX and stocks.  I remain confused and uncomfortable with the overall technical picture.

            This is not normal (short):



            Yesterday’s economic data continued its winning way.  Revised third quarter GDP was reported up 3.3% which was in line but an improvement from the prior reading; corporate profits also came in above its previous report, October pending home sales were above estimates and while weekly mortgage applications declined, the more important purchase applications were up.  Overseas, nothing.
            ***overnight, the November Chinese manufacturing and non-manufacturing PMI’s were ahead of estimates; November EU inflation was below.

            Yellen testified before congress for the last time, leaving a body of work that will surely be quoted often in the future.  Her tenor during the question and answer session did not change materially from that in her prepared remarks (which I linked to yesterday).

            The Fed released its latest Beige Book.  It was not quite as buoyant in tone as I had expected.  Still it pictured progress (medium):

            The senate continues to work to put together a tax proposal that is better characterized by junk legislation than anything that addresses a simpler, fairer or economically stimulative reform.

            This comment on the senate bill from a lion in our industry---Jack Vogel (short and today’s must read):

            The bottom line: I believe that the unwind of the gross mispricing and misallocation of assets will not end well.  I just don’t know what the trigger event is.  The GOP tax circle jerk is worse than nothing except for its political implications.  In my opinion, it will not lead to economic growth; but it will lead to higher debt and an additional constraint on the economy; it will lead to more stock buybacks and increased dividends none of which will create jobs or raise tax revenues.  When the electorate figures this all out, there will likely be hell by the GOP.

       Investing for Survival
            Expert judgment.

    News on Stocks in Our Portfolios
Donaldson (NYSE:DCI): Q1 EPS of $0.46 beats by $0.04.
Revenue of $644.8M (+16.6% Y/Y) beats by $44.73M.

Microsoft (NASDAQ:MSFT) declares $0.42/share quarterly dividend, in line with previous.


   This Week’s Data

            October pending home sales rose 3.5% versus expectations of up 1.0%.

            Weekly jobless claims fell 2,000 versus estimates of being flat.

            October personal income rose 0.4% versus forecasts of +0.3%; personal spending was up 0.3%, in line; the PCE price indicator was up 0.2%, also in line.


            The latest from Jeffery Snider (medium):

            The latest on Brexit (medium):

            US rejects China’s ‘market economy; status (medium):




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