The Morning Call
1/12/17
The
Market
Technical
Yesterday, the
indices (DJIA 19954, S&P 2275) resumed their uptrend, closing in on a
challenge of the 20000/2300 levels.
Volume was up, remaining high.
Breadth was mixed. The VIX (11.2)
declined 2%, closing below its 200 day moving average (now resistance), below
its 100 day moving average (now resistance), within a short term downtrend and
remains close to the lower boundary of its intermediate term trading range
(10.3).
Hedge fund
shorts at record lows (short):
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 {18442-20482}, [c] in an
intermediate term uptrend {11685-24535} and [d] in a long term uptrend
{5730-20318}.
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 {2155-2498},
[d] in an intermediate uptrend {2022-2623} and [e] in a long term uptrend
{881-2435}.
The long
Treasury was up, ending in a very short term downtrend, in a short term trading
range and below the 100 day moving average (now resistance), falling further
below its 200 day moving average (now resistance). It still has plenty of room to rebound before
it meets any of the multiple resistance levels or threatens to break any major
downtrends.
Jeff Gundlach
joins Gross in estimating the threshold of the end of the bond bull market
(short):
GLD was back in
unison with TLT, moving higher but remaining 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). Also like TLT, it can recover significantly
before threatening to challenge major resistance/downtrends.
The dollar fell on
big volume after a very volatile day, continuing its pattern of acting in
reverse of GLD and TLT, finishing considerably above multiple support
levels---so it can fall a lot and not challenge its 100 or 200 day moving
averages (now support) or its short term uptrend.
Bottom line: my
assumption continues to be that the indices will at least challenge the
20000/2300 levels---they are now a short hair away. It
would seem that investors are not concerned with the confusing and often nasty
sausage making process of implementing new policies and the less than collegial
debates that have begun on the budget, trade and Obamacare.
The
GLD, TLT and UUP investors are apparently a bid less sanguine about the
ultimate implementation of those debates and policies. As I said Tuesday, I don’t how this gets
resolved; I am simply pointing out the disagreement among investors.
Fundamental
Headlines
It
was a slow day for US economic data releases: weekly mortgage and purchase
applications rose.
Overseas,
the World Bank estimated that global GDP would increase approximately 2.7% in
2018; the Italian government injected E6.6 billion in Monte Paschi and said
that it would not need the EU bailout fund; November UK industrial output was
up more than expected.
***overnight,
2016 German GDP came in stronger than anticipated. Monte Paschi is still seeking upwards of E10
billion from private investors.
Politics
remain center stage. On Capitol Hill,
multiple Trump nominees moved through confirmation hearings with very few
hiccups. So it would seem that Schumer’s
threat to mount major fights over those nominations was either empty or
overstated the dems power to disrupt.
That may be a harbinger of the ability of the dems to mount opposition
to any of the GOP legislation and suggests that the speed of new policy
implementation will be more dependent on consensus within the republican ranks
versus any actions by the dems.
The
main event was Trump’s first press conference.
Aside from the theatrics related to Trump’s duel with CNN and the CIA,
he made several important policy points (1) the ‘wall’ is going up soon, (2) a ‘border’
tax in coming and (3) Obamacare will repealed and replaced simultaneously not
sequentially. Not to be repetitious, but in my opinion (2)
is not good economic policy. Using
sticks versus carrots is less effective and invites countermeasures.
***Overnight,
Senate took a first step in repealing Obamacare (short):
As, if not more,
important, the Donald said nothing about an economic agenda (tax cuts,
increased government spending). Maybe that
was an accidental oversight. I can’t
believe that it was a conscious decision.
Whatever, it could suggest that there may be trouble in fiscal policy joy
land and that all the enthusiasm about a new fiscal regime may be premature.
Counterpoint
(though he could have said something in his opening comments):
Bottom line; the
headlines remain fixed on politics. The
lack of any effective dem opposition in the cabinet nominee hearings suggests that
the dems are not going to be very effective in slowing down the implementation
of a new fiscal/regulatory regime. That
is good news if you favor change. That
said, I continue to believe the Donald’s threatened trade policy will not be a
plus for the economy.
In addition, the
lack of any mention of budget policies may be a sign that there is dissention
in the GOP ranks---a potential negative, at least, for those forecasting a
return to economic utopia. You would
think that this omission would cause some heartburn among the giddy. Nope.
This indices soared. Stock
investors remain enthralled with the ‘change’ scenario, indications to the contrary
notwithstanding. Use this price strength
to your advantage.
My
thought for the day: most of my recent
thoughts have been focused on the behavioral and
cognitive deficiencies that plague us all as investors. Unfortunately, we tend to think that they’re
other people’s problems and not our own---a bias blind spot that is just icing
on the cake. Remember that risk is risk.
Our behavioral biases and our tendency to think that they don’t apply to
us increases the odds are overwhelming that we’re going to miss or ignore them---meaning
that the greatest risk of all is staring you in the face
when you look into the mirror.
Investing for Survival
Distrust
forecasts.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Weekly
jobless claims rose 10,000 versus expectations of up 20,000.
December
import prices rose 0.4% versus estimates of up 0.7%; export prices rose 0.3%
versus forecasts of up 0.2%. (can you
say strong dollar?)
Other
Politics
Domestic
International War Against Radical
Islam
US troops now deployed in Poland
(short):
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