The Morning Call
1/13/17
The
Market
Technical
After being off big
early in the day, the indices (DJIA 19891, S&P 2270) finished down
modestly. Volume declined but remained
at a high level. Breadth was negative. The VIX (11.5) was up 1 ½%, but still closed
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).
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 {18473-20513}, [c] in an
intermediate term uptrend {11690-24540} 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 declined, 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).
GLD rose, 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). However, it can continue
to recover significantly before threatening to challenge major
resistance/downtrends.
The dollar fell,
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. The recent pin action
appears to reflect continuing investor faith in major positive changes coming
in fiscal/regulatory policies. Until
that notion gets disabused, stock prices are likely to go higher.
The
GLD, TLT and UUP investors are apparently a bit 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 investor types.
Long
speculative positions in crude oil are near record highs (medium):
Fundamental
Headlines
Yesterday’s
economic data turned positive: weekly jobless claims rose less than expected;
and December import prices were up less
than estimates while export prices were up more---a sign that the strong dollar
could be having an impact.
Overseas,
2016 German GDP came in stronger than anticipated. In addition, after getting a E6 billion
infusion from the Italian government, Monte Paschi announced it is still
seeking upwards of E10 billion from private investors. In other words, the last chapter of this
story hasn’t been written.
***overnight,
2016 Chinese exports fell 7.7%, while imports declined 5.5%; OPEC acknowledged
that there wouldn’t be 100% compliance with the production cut, that it was
likely 80% and that 50% was still acceptable---yeh, and I have a bridge in
Brooklyn to sell you; Monte Paschi must wait two weeks for eurozone approval
(for the plan that has not yet materialized); and last but certainly not least,
in a speech, Yellen said the economy is doing well.
Potential
changes in the political/economic landscape remains the central theme for
investors, although yesterday was a relatively quiet day. Today we start getting earnings reports from
the major banks which will bear watching.
Bottom line: the
driving force behind the recent Market surge has been the anticipated positive changes
coming in fiscal/regulatory policies.
However to date, the hard news that we have gotten is not universally
upbeat. On the plus side, the Trump
cabinet nominees, who are unabashedly pro business, are breezing through the congressional
approval process; and it looks like there is consensus between Trump and
congressional leaders over the handling of repealing and replacing
Obamacare.
On the other
hand, the promise of a ‘border’ tax (anti-free trade) I consider a negative to
economic growth. Plus the lack of any
details on tax and spending issues suggests discord between Trump and GOP
leaders who have already pushed back against many of his campaign’s fiscal
promises. To be sure, the guy hasn’t
even taken office yet, so it is too soon to get our panties in a wad over the
shortage of details in this area. Nonetheless,
Trump has been much more detailed on the issues of trade, moving jobs overseas
and Obamacare---also campaign promises.
So it begs the question, why hasn’t there been any discussion of the
major plank in his economic policy.
And here is the
reason (short):
My
thought for the day: in designing our Models, there were five important factors
for which I felt I must have well studied and thought out estimates in order to
have any hope of generating a decent forecast---decent not precise. (1) what is the trend in economy---growing,
contracting and at what rate, (2) what is inflation doing---rising, falling and
at what rate, (3) how much does money cost, i.e. interest rates, and how
available is it, (4) how do the aforementioned impact revenue and profit growth
of corporations and (5) how is all of this reflected in stock valuations. Doing the homework on these factors does not
mean that there will necessarily be any accuracy in my Economic or Valuation
Models; but it does mean that I am a step ahead of those who don’t engage in
this mental discipline.
Investing for Survival
Distrust
forecasts, Part 2
News on Stocks in Our Portfolios
Revenue
of $2.89B (+1.0% Y/Y) misses by $70M
BlackRock (NYSE:BLK) declares $2.50/share quarterly dividend, 9.2%
increase from prior dividend of
$2.29.
Economics
This Week’s Data
December
PPI was up 0.3% versus November’s reading of up 0.4%; ex food and energy, it
was up 0.2% versus November’s 0.4%.
December
retail sales rose 0.7% versus expectations of up 0.7%; ex autos, the number was
up 0.2% versus estimates of up 0.5%.
Other
Politics
Domestic
The conflict of
interest in government (short):
International War Against Radical
Islam
Just when you thought that the
Syrian conflict was winding down, Israel bombs Damascus (medium):
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