The Morning Call
1/4/17
The
Market
Technical
Yesterday,
the indices (DJIA 19881, S&P 2257) recovered a bit of last week’s selloff. Volume picked up, as did breadth---while it
has retreated from extreme levels, it is still in overbought territory. The VIX fell 8 ½ %, closing back below its
200 day moving average (now resistance) negating last Friday’s upside break,
below its 100 day moving average (now resistance) and within a short term
downtrend. The question is, will this
set up another challenge of the lower boundary of its intermediate term trading
range?
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 {18372-20422}, [c] in
an intermediate term uptrend {11643-24493} and [d] in a long term uptrend
{5720-20271}.
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 {2145-2489},
[d] in an intermediate uptrend {2015-2617} and [e] in a long term uptrend
{881-2419}.
The long
Treasury continued to improve on higher volume, but still ended in a very short
term downtrend, in a short term trading range and the 100 day moving average
(now resistance) falling further below its 200 day moving average (now
resistance). In other words, TLT has a
lot of work to do to overcome a clear and powerful downtrend.
GLD (110.5) is
still mirroring TLT---it lifted a bit yesterday but remained in a short term
downtrend and below its 100 day moving average (now resistance) which continues
to push further below its 200 day moving average (now resistance). There still is not much stopping it from
going to the lower boundary of its intermediate term trading range (100.0).
The dollar reversed
Friday’s plunge on decent volume and finished back above the upper boundary of
its short term trading range. I am
waiting another day or two before making the call on a reset to an uptrend.
Bottom line: the
latest sideways action of equity prices is likely indicative of nothing other than
the need to work off an extremely overbought technical condition. My assumption continues to be that the
indices will at least challenge the 20000/2300 levels; and if victorious, there
is no resistance between those levels and the upper boundaries of their long
term uptrends. But as you know, I don’t
believe any such challenge (of the upper boundaries) will be successful.
The
January barometer (short):
Fundamental
Headlines
Yesterday’s
US economic news was very upbeat: the December Markit manufacturing PMI, the December
ISM manufacturing index and November construction spending all came in above
expectations.
Ditto
the overseas data, the December Chinese and UK manufacturing PMI’s were both
up, while the December German inflation rate was much higher than forecast.
***overnight, the
December eurozone final composite PMI was at the highest level since May 2011,
CPI rose to the highest levels in four years; the December Japanese Markit
manufacturing PMI came in above estimates.
In
addition, there was a series of positive political/economic news as (1) the
senate took a first step in repealing Obamacare, (2) Trump asked DHS for a list
of all immigration executive orders imposed under Obama and (3) is jawboning of
the auto industry resulting in Ford canceling a big project in Mexico. Of
course, there is another side to the Donald’s muscling US companies (1) as I have
noted before, we could be trading of one form of regulating for another form
and (2) one of the likely overall effects is that it will lead to higher prices
in the US.
Trump tells DHS
to prepare for border wall construction (medium):
Senate begins
process of repealing Obamacare (medium):
Ford cancels
$1.6 billion plant investment in Mexico (medium):
Latest
developments on the OPEC production cuts (medium):
Bottom
line: there was nothing in the news yesterday to dampen the Trump euphoria. While the economic data is less predictable,
the optimism over the potential impact of Trump policies will likely remain
high until at least his inauguration day.
Then the rubber meets the road and the ugly political sausage making process
starts. The risk being that every
possible positive outcome has been priced into prices. Of course, they could all occur, but there is
certainly no room for error.
The
latest from Morgan Stanley (medium):
Update
on valuations:
My
thought for the day: studies have shown
that investors feel losses between two and two-and-a-half times as strongly as
gains. That tends to favor inaction over action and the status quo
over any alternative. It’s one reason why football coaches are so frustratingly
cautious and “go for it” far less often than the data says they should. Consider this if you remain fully invested.
Investing for Survival
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to play catch up for retirement.
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
December Markit manufacturing PMI was reported at 54.3 versus the November
reading of 54.1.
The
December ISM manufacturing index came in at 54.7 versus expectations of 53.8.
November
construction spending rose 0.9% versus estimates of up 0.6%.
Weekly mortgage
applications fell 12.0% while purchase applications declined 2.0%.
Other
Why
4% US GDP growth will remain elusive (medium):
A
damning review of Fed incompetence (medium):
Quote
of the day (short):
Yuan
soars on fears of capital controls (short):
Politics
Domestic
International
Le Pen wants France out of euro
(medium):
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