The Morning Call
1/31/17
The
Market
Technical
The indices
(DJIA 19971, S&P 2280) took a tumble yesterday with the Dow finishing back
below 20000. Volume declined, but
remains at elevated levels; breadth was weak.
The VIX (11.8) jumped 12%, still closing below its 100 and 200 day
moving averages (now resistance), in a short term downtrend but above the upper
boundary of a very short term downtrend.
If it remains there at conclusion of the day, that downtrend will be
negated.
The Dow ended
[a] above its 100 day moving average, now support, [b] above its 200 day moving
average, now support, [c] in a short term uptrend {18604-20644}, [c] in an intermediate
term uptrend {11721-24573} and [d] in a long term uptrend {5730-20736}.
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 {2174-2517},
[d] in an intermediate uptrend {2034-2635} and [e] in a long term uptrend
{881-2500}.
The long
Treasury declined slightly, closing in a very short term downtrend, near the
lower boundary of its short term trading range and below the 100 day moving
average (now resistance), falling further below its 200 day moving average (now
resistance).
GLD rebounded
but ended 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).
The dollar fell,
but finished above its 100 or 200 day moving averages (now support) and in a
short term uptrend. However, it
continues to develop a very short term downtrend and is near its 100 day moving
average.
Bottom line: the
Averages had their first bad day in three weeks. Mama said that there would be days like this;
but there is nothing unusual. I can come
up with a forward scenario that either this means the end of an unsuccessful
challenge of the 20000/2300 levels or that the S&P is simply gathering
strength for the next assault. At the
moment, the former has the edge as the most likely; and a few more days of this
retreat could portend something more significant. But let’s not get ahead of ourselves. Patience.
Fundamental
Headlines
Yesterday’s
economic news was a bit negative: December personal income rose less than
expected while spending was flat (consumers continue the spend more than they
earn), the January Dallas Fed manufacturing index was ahead of estimates while
December pending home sales were stronger than forecasts.
Overseas,
January EU industrial confidence and economic confidence were better than
estimates while services confidence was below; and January German CPI was up
1.9%.
Of course, the
latter pushes the ECB in the direction of tightening. So here are the latest stats on its balance
sheet (medium):
***overnight,
Bank of Japan raises its forecast for GDP growth and inflation; 2016 EU GDP growth
was 1.7%, unemployment was down and inflation up; the Greek bailout problem isn’t
getting resolved
Monday
with Donald:
(1)
signs executive order that curtails regulation.
http://www.nbcnews.com/politics/politics-news/trump-signs-executive-order-reduce-regulations-n714151
(2)
defends executive order on refugees
(3)
puts a gigantic hex on the Market by commenting on how
his early moves have led to a ‘massive’ increase. Those are the kind of statements that come
back to bite you.
However,
the overriding theme of the day was the Market’s sudden realization that (1) Trump’s
trade moves have negative implications and (2) tax cuts and infrastructure
spending may not be coming as soon and to extent as originally hoped.
Even our
resident optimist is a little less so (medium):
Traders
jump on anti-Trump bandwagon. However,
they should be blaming themselves for their own insouciant grasp of reality
(short):
And
it just getting worse (medium and a must read):
Bottom
line: is the honeymoon over? No clue.
But as you know, Trump fulfilling his social agenda aside, I have believed
that at some point the negative implications of corporate interventions,
talking the dollar down, his anti-free trade policy proposals and the lack of
visibility of any tax and infrastructure plans would start to impinge on
investor jigginess. Whether Trump
corrects this or the Market returns to ignoring it, I don’t know. But what I sincerely believe is that,
whatever happens, the math has to work.
And right now, it doesn’t.
My
thought for the day: one of the most common mistakes investors make is assuming
that the past performance of a mutual fund is a good indication of its
potential. In fact, the opposite is
true, studies have shown that fund managers’ performance is mean reverting,
that is, great performance leads to poor performance and vice versa.
Along
that same line, investors are so assume that because the Market has increased
at an above for several years, it will continue to do so in the future. The truth is that the Market has historically
advanced at 5-7% annually and the Market fluctuates around that linear
progression. If it gets above the trend
line for too long and by too much, it is simply bringing future increases
forward to the present. That almost
always leads to mean reversion or, at the least, no additional advance for a
long period of time. Sort of like now.
Investing for Survival
Markets
are right more often than you think.
News on Stocks in Our Portfolios
Revenue of $16.93B (+5.5%
Y/Y) misses by $80M.
Revenue of $2.76B (+9.5%
Y/Y) misses by $30M.
Exxon Mobil (NYSE:XOM): Q4 EPS of $0.41 may not be comparable to
consensus of $0.70.
Revenue of $61.02B (+2.0%
Y/Y) misses by $1.26B.
Economics
This Week’s Data
December
pending home sales rose 1.6% versus estimates of up 0.6%.
The
January Dallas Fed manufacturing index came in at 11.7 versus the December
reading of 14.8.
The fourth quarter employment
cost index was reported at 0.5% versus expectations of 0.6%.
Month to date retail
chain store sales grew at a slower pace than in the prior week.
Other
Mnuchin
nixes bank proprietary trading (medium):
Politics
Domestic
International War Against Radical
Islam
Did
Iran just violate the nuclear deal---again (short):
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
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