The Morning Call
12/14/17
The
Market
Technical
The indices
(DJIA 24585, S&P 2663) turned in a muted version of ‘sell on the news’
yesterday, as the headlines were all upbeat but the Averages mixed (Dow up,
S&P down). Volume declined modestly
while breadth remained strong. 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 (10.3)
rose 2 1/2 %, closing below its 100 and 200 day moving averages (both
resistance) but finished above the lower boundary of its long term trading
range.
The long
Treasury was up big on volume, ending above its 100 and 200 day moving averages
and the lower boundaries of a very short term uptrend, its short term trading
range and long term uptrend. So bond
investors apparently viewed the FOMC statement as dovish.
The dollar was down
big on volume, finishing below its 200 day moving average (now resistance) but
above its 100 day moving average (now support) and back below the upper
boundary of its short term downtrend (negating Tuesday’s break). Dollar investors also aren’t that enthused
with yesterday’s Fed (in) action.
Gold
was up big on volume, but remained below its 100 and 200 day moving averages
and within a short term trading range.
GLD investors seemed to concur that the FOMC is filled with wimps.
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. If you own enough cash to sleep at night, lay
back and enjoy it.
Trading in UUP,
GLD and TLT were back in sync reflecting an attitude of disdain for a weak
wristed Fed. The VIX seemed to be
agreeing while stocks were more neutral in their response. I remain confused and uncomfortable with the
overall technical picture.
Fundamental
Headlines
Yesterday’s
economic stats were mixed: weekly mortgage and purchase applications fell while
November CPI was in line---indeed portraying a much more benign picture of
inflation than did the previous day’s PPI number. I should note that PPI tends to lead CPI;
but as long as the Fed’s favorite inflation indicator remains below its stated
objective, there is little reason to assume that there is any pressure to speed
up the normalization of monetary policy.
***overnight,
November UK retail sales were better than anticipated; November Chinese
industrial output and retail sales were below estimates.
The
lead items of the day were:
(1)
a second round of rumors on an agreement on the tax
bill. While the particulars were almost
identical with the first set of rumors, it still provided another opportunity
for investors to get jiggy.
Here is what we know so far (medium):
More on the exceeding low tax rate US corporations are now paying
(medium):
Don’t expect an investment boom
if corporate tax rates are cut (medium):
(2)
the conclusion of the December FOMC meeting, its policy
actions and outlook. All was pretty much
in line with my assumptions: a quarter point rate hike [everyone expected this]
and a bright and shining economic forecast---rising GDP growth, declining
unemployment and inflation gradually reaching the Fed 2% objective. Of course, that doesn’t occur until 2020, so
it is nothing to be worried about today and far enough in the future to be
rendered useless as a forecast. As I
noted above, most markets judged the action/statement as dovish---rising bond
and gold prices and a lower dollar. In
short, the Fed is leaving not upsetting the markets [even though, as I have
often observed, not upsetting the markets is not anywhere to be found in its
policy mandate] as a priority to the timely unwinding of QE.
***overnight, the
ECB met and left rates and its QE program unchanged (short):
As did the Bank
of England; also leaving policy unchanged (medium):
However, China
raised rates slightly (medium):
Bottom line: the
bulls had another goldilocks news day---tax reform is coming (however,
ineffective it may be) and the Fed continues to have the Markets’ back. At least some of the stock boys think so as
did bond, dollar and gold investors. In
other words, buy everything except the dollar---because, you know, who wants to
own the currency of a country whose ruling class is more concerned about short
term effect of the headlines than their long term consequences.
I have no idea
how or when this ends. As long as the headlines
remain positive and the algos have a dollar left to push prices higher, all
will be well. But at some point,
somebody or some event is going to point to the emperor and all the lemmings
are going to realize that he has no clothes.
Until then, lay back and enjoy the ride.
However, I would have some cash for the aftermath.
The
latest from Doug Kass (medium):
Investing for Survival
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circle of competence.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Weekly
mortgage applications fell 2.3% while purchase applications were down 1.0%.
November
CPI rose 0.4%, in line while ex food and energy, it was +0.1% versus
expectations of up 0.2%
Weekly
jobless claims fell 11,000 versus estimates of a 3,000 increase.
November
retail sales were up 0.8% versus forecasts of up 0.3%; ex autos, they were up
0.8% versus projections of up 0.4%.
November
export prices increased 0.7%, in line; import prices were up 0.5% versus
consensus of up 0.3%.
Other
Today’s
bitcoin entries:
Politics
Domestic
International War Against Radical
Islam
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