The Morning Call
11/17/16
The
Market
Technical
The
consolidation from an overbought position that I had been expecting seemed to
have started yesterday, though it didn’t show much force. The indices (DJIA 18864, S&P 2176) were
down slightly on even lower volume and slightly less positive breadth. The VIX was up 3%, closing below its 100 day
moving average (now resistance), below its 200 day moving average (now support;
if it remains there through the close on Friday, it will revert to resistance) and
bounced off the lower boundary of a very
short term uptrend for seemingly the ninth time. I say ‘seemingly’ because it was an
unimpressive rebound. The key as always
is follow through.
Funds flow
(medium and a must read):
The Dow ended
[a] above on its 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] in a short term uptrend {17971-20028}, [c] in
an intermediate term uptrend {11544-24389} and [d] in a long term uptrend
{5541-20148}.
The S&P
finished [a] above its 100 day moving average , now support, [b] above its 200
day moving average, now support, [c] within a short term trading range
{1995-2193}, [d] in an intermediate uptrend {1983-2585} and [e] in a long term
uptrend {862-2400}.
The long
Treasury was up for a second day; though most of the fixed income complex was
down. As I noted yesterday, this is more
likely a sign of correcting an oversold condition versus anything really
positive. TLT closed below its 100 day
moving average (now resistance), below its 200 day moving average (now
resistance), below a key Fibonacci level, in a developing a very short term
downtrend, in a short term trading range and in an intermediate term trading
range. Not a pretty picture and one that
will require a lot of work to just not be ugly.
GLD couldn’t
hold on to its one day rally, finishing below its 100 day moving average (now
resistance), below its 200 day moving average (now resistance) and in a short
term downtrend.
Bottom line: the
Averages took a rest yesterday which probably means absolutely nothing with
respect to their current upside momentum.
Despite a growing chorus pointing out the not so positive consequences
of Trump’s fiscal/regulatory policies, investor enthusiasm seems relatively
undiminished. At the moment, the only
real hitch in the gitty up is that the indices are out of sync. How that is resolved will likely point the to
near term direction.
More
on the soaring dollar (medium):
Fundamental
Headlines
This
week’s hot streak in economic data cooled off a bit yesterday: weekly mortgage and
purchase applications were down, October industrial production (primary
indicator) was below estimates, the November homebuilders’ confidence index was
unchanged from October and October PPI was flat with September.
***Yellen
testifies before congress today. Here
are her prepared remarks (medium):
Nothing
from overseas other than but one day following all those optimistic OPEC
production cuts headlines, reality set in as several members decline to meet
next year.
Now
that everyone has taken a pause to assess the potential impact of the Trump
fiscal regulatory policies, cognitive dissonance is starting to creep into the narrative. I have linked to a number of discordant
views, not because I am a skeptic about the possible effect of those
policies. I have already said that I believe
the net outcome will be positive. But
because I hope to temper any impulse you may have to start tip toeing through
the tulips and run out and buy stocks.
This
from Bill Gross (medium):
This
from Jeff Gundlach (medium):
This
from congress (medium):
This from Brett Arends
(medium):
This from the Treasury
market (medium):
Inflation expectations
rising (short):
Dividend
cuts ramp up in the fourth quarter (short):
Bottom
line: ‘……while I am all in on a better economic outlook, its magnitude and
timing are very much in question. Plus,
we have no idea about the consequences of a more confrontational trade policy and
an expanding budget deficit.
My caution may be totally misplaced and end
up being dead wrong. Certainly, near term, it will appear that way. But I keep coming back to the extraordinary
level of current Valuations. I can see
stocks attacking the upper boundaries of their long term uptrends which would
means a max upside of 6-10%. On the
other hand, even if our Valuation Model is under estimating current Fair Value
by 50%, the downside is still 20-25%.
10% up/25% down is not a great risk/reward equation.
If you haven’t
already, I would build your portfolio’s cash position by selling a portion of
those stocks that have performed well and all of your losers.’
My
thought for the day: most everyone is smart enough to make money in
stocks. Not everyone has the
stomach. If you can’t stop yourself from
buying at the top and selling at the bottom, you should avoid stocks
altogether.
Investing for Survival
The
art of doing nothing (part 2)
News on Stocks in Our Portfolios
Economics
This Week’s Data
October
industrial production was flat versus expectations of up 0.1%; capacity
utilization was 75.3 versus estimates of 75.4.
November
homebuilder optimism came in at 63, in line.
Weekly
jobless claims fell 19,000 versus forecasts of up 3,000.
October CPI rose
0.4%, in line.
October
housing starts were up 25% versus projections of up 11.5%.
The
November Philadelphia Fed manufacturing index came in at 7.6 versus consensus
of 8.0.
Other
Update
on big four economic indicators (medium):
Trump
team hints at ‘infrastructure’ bank (medium):
Politics
Domestic
International War Against Radical
Islam
Interview
with an American journalist in Iraq (medium):
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for Survival’s website (http://investingforsurvival.com/home)
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