The Morning Call
11/18/16
The
Market
Technical
So much for
consolidation. The indices (DJIA 18903,
S&P 2181) resumed their upward move; however, Wednesday’s brief and shallow
selloff hardly corrected the Averages overbought condition. Volume was up slightly; breadth positive. The VIX was down 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 today, it will revert to
resistance) and ended right on the lower boundary of a very short term uptrend. I am assuming this is all part of a ninth
challenge of this boundary.
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 {18000-20057}, [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 {1986-2588} and [e] in a long term
uptrend {862-2400}.
The long
Treasury got hammered again after a brief respite, finishing 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.
GLD fell again, ending
below its 100 day moving average (now resistance), below its 200 day moving
average (now resistance) and on the lower boundary of its short term downtrend.
The dollar
spiked with the UUP (26.0) a hair’s breadth from the upper boundary of its
short term trading range (26.13).
Bottom line: the
Averages forged ahead, though they remain in very overbought territory. It does look like the S&P is going to
make a run at the upper boundary of its short term trading range; clearly, if
successful, it will reconcile its current divergence with the Dow. Until that happens, we have a directionless
market.
Record
ETF fund flows (medium):
Fundamental
Headlines
Yesterday
was another good one for US economic stats: October CPI was flat, weekly
jobless claims were down more than anticipated and October housing starts were
awesome. The only disappointing number was the Philly Fed manufacturing index. So this has been a very positive week. However, it is still only one week; so about
the only possible trend we can discern is that the data seem to be struggling
to stop deteriorating. That would be
good news; but it is too soon to tell.
That said, (1) the proposed Trump fiscal/regulatory regime should lead
to better numbers and (2) even before that occurs, the dramatic pick up in
sentiment may have an uplifting effect of economic activity. Hence, the risk of recession has declined
substantially. The question before us
is, how big a net positive impact (remember possible trade issues and a major increase
in deficit spending could be negatives) going forward will these policies have
and when?
The
other noteworthy news of the day was Yellen’s testimony before congress in
which she sounded a good deal more confident in a December rate
hike---undoubtedly influenced by (1) the relief of assuming that the Fed no
longer had to be responsible for keeping stock prices up and (2) stock prices
being up.
***overnight, Draghi sent
a strong signal that the ECB would extend its bond buying program due to the
weak EU economy.
Outlook
for muni bonds (medium):
Bottom line: the economic numbers this week look good,
though that really isn’t the news. The story
is better sentiment which itself could drive more economic activity and the
potential impact of the Trump fiscal/regulatory renaissance. As you know, with the caveat of the
uncertainty surrounding the timing and magnitude of these more pro-growth
policies, I believe their net effect on the economy will be a plus.
However, as I repeatedly
point out, a better economy is not likely to resolve the issue of equity over valuation,
I don’t care how much earnings go up.
P/E’s are at the upper end of historical valuations and that is due
primarily to carnival of QE/ZIRP/Operation Twist which may be ending. And frankly, a decline in P/E’s due solely to
a normalization in monetary policy could be the good news scenario; because we
have no way of knowing the added upward pressure that larger federal deficits
will place on rates. And that ignores
the increased tension on rates that seems to be developing as a result of
dollar funding problems in foreign credit markets. In short,
earnings may be going up; but that in no way means the stock prices will follow
suit.
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.’
The
latest from Raoul Pal (medium):
My
thought for the day: I wrote the other day about the importance of being able
to state why you own a stock as simply as possible. The corollary to that is if reason that you bought
the stock is simple, then so will the reason to sell it.
Investing for Survival
Fooled
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News on Stocks in Our Portfolios
·
Nike (NYSE:NKE) declares $0.18/share quarterly dividend, 12.5%
increase from prior dividend of $0.16.
·
Brown-Forman (NYSE:BF.A) declares
$0.1825/share quarterly dividend, 7.4% increase from prior
dividend of $0.17.
Tiffany
(NYSE:TIF) declares $0.45/share
quarterly dividend, in line with previous.
Economics
This Week’s Data
Other
More
on the strong dollar (medium):
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Domestic
International War Against Radical
Islam
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