The Morning Call
1/23/18
The
Market
Technical
The indices
(DJIA 26214, S&P 2832) had another great day. Long term, they remain robust 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 their long
term uptrends. The technical assumption has to be that stocks are going
higher.
And
(medium):
The VIX declined
another 2%, trading in its normal inverse relationship with stock prices for the
second day. It is now below the lower boundary of the recently reset short term
trading range; if it remains there through the close on tomorrow, it will
revert back to a downtrend. A little
more of this and it will look like the ‘short the VIX’ crowd is back in control.
The long
Treasury was up fractionally, but remained below its 200 day moving average for
a second day; if it remains there through the close tomorrow, it will revert to
resistance. While TLT remains in a
technical no man’s land, its recent pin action seems to be pointing to a
resolution on the downside (higher rates, stronger economy).
The dollar managed
another meager up day, but this does little to alter its downhill slide. I remain of the opinion that a declining
dollar is not an economic positive---in that, ultimately it will require action
by the Fed to defend it (i.e. higher interest rates).
GLD moved higher,
though it is still challenging the lower boundary of its very short term
uptrend.
Bottom line: The
current weight of technical evidence is that stocks appear likely to go
higher. But the further the current
‘melt up’ goes, the more tenuous that assumption becomes.
I remain
uncomfortable with the overall technical picture.
Fundamental
Headlines
Three
developments yesterday.
(1)
the senate passed a continuing resolution, the house
followed suit and Trump signed the bill which will allow the government to
re-open; but it only lasts for three weeks which means more fodder for the
evening news shows in coming days. It
helps the electorate just barely.
(2)
the White House released outline of a $1 trillion
infrastructure bill---‘outline’ being the operative word. You know my thoughts: another $1 trillion in
government spending is, in my opinion,
not a big plus for the long term secular growth rate of the economy (short):
The
tax cuts and the current account deficit (medium):
And the deficit/debt just keeps on growing
(medium):
And so does the debt service (medium):
(3)
Trump fired the first short in a potential trade war,
imposing tariffs on washing machines and solar panels. As you know, I think there was a fine line
between what is necessary and what could trigger a trade war in which there are
no winners. So far, the reaction of
South Korea and China [the main suppliers of washing machines and solar panels]
has been muted. But it is only day one. Let’s see what happens next.
Bottom line: if the recent corporate investing and hiring
moves become common then the long term secular economic growth rate will
rise. The issue is one of magnitude and
for our purposes how the economic improvement gets valued. On
that point, my opinion is that under the best scenario that I can imagine, equities
remain overvalued.
On the other
hand, if you have been reading the articles in the Technical section that I have
linked to, the pundits are fairly unanimous that there is no evidence of
investor uncertainty. As long as that is
the case, valuation will not be particularly relevant. Still, I think it wise to own some cash for
your own protection. As you know, I am
50% invested and sleeping well.
Morgan
Stanley says tax reform is now priced in (medium):
More
on valuations from an optimist (medium):
The
pin that pricks the bubble (medium):
Goldman:
the risk appetite has never been higher (short):
News on Stocks in Our Portfolios
Revenue of $4.58B (+0.9% Y/Y) misses by $20M.
Revenue of $17.4B (+3.2% Y/Y) in-line.
Revenue of $20.2B (+11.5% Y/Y) beats by $130M.
Economics
This Week’s Data
US
International
January
German investor sentiment soared.
The
Bank of Japan left monetary policy (QE) unchanged.
Other
Taking
the ‘over’ on inflation and growth (medium):
What
I am reading today
Preparing financially for becoming a
widow/widower (medium):
Nassim Taleb thinks bitcoin is a
good idea (medium):
Quote of the day (short):
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
No comments:
Post a Comment