The Morning Call
12/7/16
The
Market
Technical
The indices
(DJIA 19251, S&P 2212) continued their latest move up. Volume was once again huge; breadth weakened
a tad, but remains at overbought levels.
The VIX (11.8) was off another 3%, keeping it below its 200 day moving average
(now resistance) below its 100 day moving average (now resistance) and within a
short term downtrend. It moved closer to
the lower boundary of its intermediate term trading range (10.38).
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 {18127-20187}, [c] in
an intermediate term uptrend {11597-24447} 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 {2113-2455},
[d] in an intermediate uptrend {1998-2600} and [e] in a long term uptrend {881-2419}.
The long
Treasury (119.4) fell fractionally, closing below its 100 day moving average
(now resistance), below its 200 day moving average (now resistance), below a
key Fibonacci level and in a very short term downtrend. It remains poised to challenge the lower
boundary of its short term trading range (117.3) and the lower boundary of its
intermediate term trading range (115.3). However, it does seem to be trying to stabilize.
GLD also
declined slightly, ending below its 100 day moving average (now resistance),
below its 200 day moving average (now resistance), below a key Fibonacci level
and below the lower boundary of its short term downtrend.
The dollar recovered
modestly, but remained below the upper boundary of its short term trading range. It would appear that its recent challenge of
that boundary is over for the time being.
However, it is still in a strong very short term uptrend and well above
its 100 and 200 day moving averages.
Bottom line: the
rally continues; once again on incredible volume. I remain amazed that prices haven’t reacted
even more positively than they have; although some slight weakness could be
seen in the breadth numbers. Historically,
modestly higher prices on huge volume and a weakening in breadth is not a
positive indicator of even higher prices, especially given the overbought
condition in the Market. That said, the Market
strength continues to astound me; so there is no reason for it to stop now.
TLT appears to
be trying to find a base; that notion is supported by much improved performance
in other sectors of the fixed income market.
That could explain the loss of upward momentum in the dollar---which
would be helpful if it continues, given the negative impact of a strong dollar on
the foreign earnings of US corporations.
Fundamental
Headlines
Yesterday’s
economic data was mixed to negative: revised third quarter nonfarm productivity
slightly less than anticipated while unit labor costs were well ahead on
estimates, the October trade deficit was fractionally higher than expected,
month to date retail chain store sales grew less than in the prior week and
October factory orders were in line.
Overseas,
the news was also mixed: the IMF and EU finance ministers failed to reach
agreement on a Greek bailout; November German industrial orders grew rapidly.
***overnight
the European Commission fined three major banks, one of which is JP Morgan,
E485 million in a Euribor rate price fixing; UK industrial production declined
the most in eight months; China’s foreign exchange reserves fell for the fifth
straight month..
Also
capturing headlines:
(1)
apropos of next week’s FOMC meeting, several regional
Fed presidents made comments suggesting that the rate of monetary normalization
will depend on fiscal policy (medium):
(2)
the consequences of the Italian referendum continues to
be analyzed. Here is a really good
summation of the issues and likely after-effects (medium):
Fitch cuts outlook for Italian banks
(medium):
***overnight,
Italy announced that it is preparing to make a E2 billion investment in Monti
Paschi, hoping this will lure other investors.
(3)
Trump was back at it again; this time going after
Boeing on its contract to build the next generation of Air Force One. As you know, I have opined that many of the fiscal/regulatory
promises that he/GOP made during the campaign would be pluses to the US economy. ‘Promises’ being the operative word. However, right now, we are witnessing
actions, to wit, taking on one company after another [Carrier, now Boeing] in
how they run their businesses.
Yes, keeping jobs in the US is good. And yes, worrying about how the taxpayers’
money is being spent is good especially in light of the just released Pentagon
study [see below]. But saying that you
are going to deregulate the business environment and then attacking businesses
because you don’t like a specific action is confusing at best. To be clear, I don’t have a problem with a
push to cut government waste. But I am
suggesting that Trump maybe defining deregulation a lot more narrowly than all
the broad happy assumptions the Market has made about how great it will be for
the economy.
Bottom line: actions
have always spoken louder than words (promises); and the actions coming out of
the president-elect are not quite what seems to being discounted in the Market. As I point out above, the Donald said he was
for deregulation, but he actions with Boeing means that it may not be for
everyone (which just to be clear, I don’t have a problem with). He said that he wants to cut America’s exposure
to regional conflicts; but he just placed three hard ass neocons in national
security roles and stuck his finger in China’s eye.
Not to be
repetitious, my point is what the Donald and GOP have said may be much
different than what the Market seem to have assumed that they do; but at least
for the moment, it remains fixated on what they have said. Beware of Greeks bearing gifts.
The
latest from Bill Gross (medium):
Sugar
pills (short):
What
is good for workers tends to be bad for investors (medium):
My
thought for the day: one of the harmful biases that investors bring to the process
is termed ‘anchoring and adjustment’. It
means initial information unduly influences decisions by shaping the view of
subsequent information. Once the ‘anchor’
or initial information is set, there exists a bias for interpreting other
information around the anchor. Think
Trumponomics. See above.
Investing for Survival
The
probability distribution of the future (excellent read).
News on Stocks in Our Portfolios
Brown-Forman (NYSE:BF.B): FQ2 EPS of $0.50 in-line.
Revenue
of $830M (-2.8% Y/Y) misses by $6.65M
MasterCard (NYSE:MA) declares $0.22/share quarterly dividend, 15.8%
increase from prior dividend of
$0.19.
Economics
This Week’s Data
Month
to date retail chain store sales rose at a much slower pace than in the prior
week.
October
factory orders were up 2.7%, in line.
Weekly
mortgage applications fell 0.7% while purchase applications rose 0.4%.
Other
Yesterday,
I linked to a release discussing the latest Fed labor market conditions index. Here is a thorough analysis of what it might
mean (medium):
Politics
Domestic
Pentagon buries
study showing $125 billion in waste (medium):
International
Pat Buchanan on Trump’s call with
the Taiwanese president (medium):
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for Survival’s website (http://investingforsurvival.com/home)
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