The Morning Call
11/30/16
The
Market
Technical
The indices
(DJIA 19121, S&P 2204) traded in a narrow range yesterday, ending slightly
to the upside (thereby remaining above the magical ‘round’ numbers of
19000/2200). Volume fell; breadth improved
somewhat and remained at very overbought levels. The VIX declined 2%, finishing solidly below
its 100 and 200 day moving averages, within a short term downtrend and below
the lower boundary of its former very short term uptrend.
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 {18074-20134}, [c] in
an intermediate term uptrend {11568-24418} 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 uptrend {2106-2450},
[d] in an intermediate uptrend {1993-2595} and [e] in a long term uptrend {881-2419}.
The long
Treasury was up again, but still closed below its 100 day moving average (now
resistance), below its 200 day moving average (now resistance), below a key
Fibonacci level, in a very short term downtrend, in a short term trading range
and in an intermediate term trading range.
GLD fell, ending
below its 100 day moving average (now resistance), below its 200 day moving
average (now resistance) and below the lower boundary of its short term
downtrend.
The dollar fell,
finishing back below the upper boundary of its former short term trading range
(it had reset on Monday), raising the question of whether the confirmed break
was a false flag. As always, follow
through is the key to defining this trend.
Bottom line: the
consolidation that began Monday continued yesterday as prices rose but not by
much. Over extended Markets generally
correct by either a sharp short term reversal or a period of sideways
movement. The last two day’s pin action
suggests that the latter could be occurring; but it is far too soon to make
that judgment. Whichever happens, I am currently
assuming that the Averages will eventually challenge the upper boundaries of their
long term uptrends.
Fundamental
Headlines
The
trend towards better economic data continued yesterday: revised third quarter GDP
was better than expected, corporate profits were up from the prior report;
month to date retail chain store sales and November consumer confidence were up;
and the September Case Shiller home price index was in line.
Overseas
stats were mixed: France’s third quarter GDP was in line while October consumer
income and spending were ahead of estimates; November EU economic and industrial
confidence were below consensus while consumer confidence was in line.
***overnight,
November EU inflation rose but is still increasing below the 2% goal; the ECB reported
that one third of all EU nonperforming loans are held by Italian banks. In addition, three major UK banks failed the
latest ‘stress test’.
In
short, while it is too early to know if either the US or global economies are
improving, the numbers are clearly supporting better investor psychology.
In
other issues that I have on the front burner:
(1)
signs of Chinese monetary tightening continue to
grow---Chinese bond yields continue to rise (medium):
***overnight, Chinese repo rates
soar (short):
(2)
OPEC is more confused than the Fed (medium):
Well, maybe not. But they are still liars and cheats. The
latest:
Bottom line: better
economic numbers are helping keep investor psychology in the red zone while
they remain immune to concerns over lower oil prices, a global dollar shortage
and troubles in the Italian banks. Until
something breaks this mindset, stock prices are likely to move up. How long that lasts? How high prices rise? No clue.
But even if I assume
that the ‘Trump revolution’ will lead to a higher secular growth rate of the
economy, I can’t get equity valuations even close to current levels. If I were a trader (which I am not), I might
buy an equity Market ETF, using a very tight stop. But I would under no circumstances buy stocks
on the thesis that ‘this time is different’ and stocks are going to sustain some
new higher level valuation. I am much
better off being wrong in the short term than being wrong in the long term.
The
latest from Stanley Druckenmiller (medium):
My
thought for the day: for some reason, investors find a cheap stock appealing
apparently because they think it is much easier for a $3 stock to go to $6 than
a $50 stock to go to $100. But a lousy
cheap stock has no more intrinsic value than a lousy expensive stock. No matter what price you pay, the risk/reward
equation is the same.
Investing for Survival
Making
sense when there is no sense to be made.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Month
to date retail chain store sales grew faster than in the prior week.
November
consumer confidence came in at 107.1 versus expectations of 101.0.
The
September Case Shiller home price index rose 0.4%, in line.
The November ADP private payrolls
report showed an increase of 216,000 jobs versus consensus of an additional
160,000 jobs.
Weekly
mortgage applications fell 9.4% while purchase applications dropped 0.2%.
October
personal income was up 0.6% versus forecasts of up 0.4%; personal spending was
up 0.3% versus an anticipated up 0.5%.
Other
In
defense of the Fed’s proposed rate hike (medium):
The
latest from Jeremy Siegel (medium):
Update
on auto loans (medium):
Ed
Yardini on trade and tariffs (medium):
Politics
Domestic
How Trump’s new
HHS wants to replace Obamacare (medium):
Update on Trump
nominees (medium):
US generals have
forgotten how to win (medium):
International
Nuclear
material stolen from Iran could yield a dirty bomb (medium):
Turkey ups the ante in Syria
(medium):
A closer look at the Italian
referendum (medium):
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for Survival’s website (http://investingforsurvival.com/home)
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