The Morning Call
11/9/16
The
Market
Technical
The indices
(DJIA 18332, S&P 2139) continued their rally. Volume declined again, while breadth improved. The VIX was up fractionally (back to its
trend of rising irrespective of stock price movement), closing above its 100
day moving average (now support), above its 200 day moving average (now
support), in a very short term uptrend but in a short term downtrend.
The Dow ended
[a] above on its 100 day moving average, now resistance; if it remains there through
the close on Thursday, it will revert to support, [b] above its 200 day moving
average, now support, [c] within a short term trading range {17092-18693}, [c]
in an intermediate term uptrend {11544-24389} and [d] in a long term uptrend
{5541-19431}. It also finished above the upper boundary of a developing very
short term downtrend and at the top of the July to November trading range.
The S&P
finished [a] below its 100 day moving average, now resistance, [b] above its
200 day moving average, now support, [c] within a short term trading range
{1995-2193}, [d] in an intermediate uptrend {1978-2580} and [e] in a long term
uptrend {862-2400}. Unlike the Dow, it
ended below a developing very short term downtrend and in the middle of the
July to November trading range.
The long
Treasury (130) declined, closing 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 and is nearing the
lower boundary of its intermediate term uptrend (128).
GLD was down again,
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), below the lower boundary of a very short term
uptrend and in a short term downtrend. This
chart is once again deteriorating.
Bottom line: the
Averages followed through to the upside with the Dow challenging several
resistance levels. That is the good
news. On the other hand, volume was low. Plus, at least in the short term, stock
prices are probably tied to the outcome of the election. So short term, Market direction will likely
be a function of who wins and by how much.
Fundamental
Headlines
There
were only two minor US datapoints released yesterday: both the October small
business optimism index and month to date retail chain store sales
improved. Overseas, the news was not so
good---October EU corporate profits, German industrial output and Chinese
exports declined. On the other hand, UK
factory output rose.
***overnight,
October Chinese PPI rose 1.2% versus forecasts of up 0.9%.
Bottom line: like
Monday, the election dominated media output and investor attention yesterday;
and as I noted above, the outcome will likely influence Market direction, at
least in the short term. Longer term,
gridlock is probably the good news scenario.
More than any other time in my memory, an election sweep would be a
nonoptimal outcome.
Take the current
opportunity to build your cash position by lightening up on your winners and
selling your losers.
PS. In the aftermath of the Trump victory, every
pundit known to man with be prophesying in one form or another for who knows
long into the future while the Markets will be trying to digest it. I am going to add my two cents worth but will
focus on the here and now. Generally, I think
long term forecasts are a waste of time because things never work out as
expected.
(1)
global Markets are down. But remember they were down after the Brexit
vote and then recovered completely. So I
am not going to get too worked up by the pin action in the next couple of days,
whatever it is.
(2)
that said, I wondered out loud last week whether or not
Trump would prove to be the exogenous trigger for a mean reversion in the
Markets. At first blush, it seems like
it could be. However, true mean
reversion is a Dow 13,000/S&P 1600.
Clearly that is a long way from here; hence it is much too early to be making
that call.
(3)
the group that sold stocks down over night is the establishment
Wall Street crowd that [a] was, at the very least, partially responsible for
the financial crisis, none of whom have been fined or sent to jail, [b] wee weed in their pants over QE, which has
proven to be the most egregiously irresponsible monetary policy in our life
time, [c] were active participants in the K Street lobbying pay for play system
of governing that has plagued the US political system for the last 16 years and
[d] in general supported the whole ‘basket of deplorables’ notion with which
the media, intellectual elite and ruling class viewed any American that wasn’t
one of them. So the fact that they maybe
panicking concerns me not a whit.
Remember our Portfolios are 50-55% in cash.
(4)
if you believe what Trump has said, then his economic
policies will be far better for the country than Hillary’s: lower taxes,
reversing Obamacare, reversing executive orders and other forms of regulation, repatriating
the billions of dollars held overseas by US corporations and demanding that our
allies, who the US has been protecting for decades, pay some of that expense. To be sure, this country is going to have to
endure some pain to the correct the mistakes of the past. But if Trump does what he said that he was
going to do, then the economy will be building a sound foundation for recovery.
(5)
all of that said, I have said in these notes more than
once that political gridlock has always been my preference for governance. It remains so; and the GOP sweep is the potential
bad news segment of these comments---though admittedly Trump and Congress are
not exactly on the same page.
My
thought for the day: it is important that investors are brutally honest about
themselves, especially their shortcomings, because the Market has a way of
exploiting weaknesses. They need to
develop a discipline that recognizes those flaws and address their decision making
process to minimize their impact. Every
investor is going to be wrong. The task
is to make as few mistakes as possible; and one way to do that is to avoid
stupid errors resulting from personal limitations.
Investing for Survival
Why
smart people make bad decisions (must read):
News on Stocks in Our Portfolios
Economics
This Week’s Data
Month
to date retail chain store sales grew slightly faster than the previous week.
Weekly
mortgage applications fell 1.2% while purchase applications rose 1.0%
Other
Some
perspective on gross margins (medium):
Is
inflation returning? (medium):
The
problem with central banks buying equities (medium):
Politics
Domestic
Nassim Taleb on
the election (medium):
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
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