The Morning Call
1/20/17
The
Market
Technical
The indices
(DJIA 19732, S&P 2263) traded off on higher volume and weaker breadth. The VIX (12.7) was up another 2%, closing right
on the upper boundary of a very short term downtrend and near its 100 and 200
day moving averages (now resistance), and pulled even further away from the
lower boundary of its intermediate term trading range (10.3---a mild negative
for stocks).
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 {18517-20557}, [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 {2162-2505},
[d] in an intermediate uptrend {2026-2627} and [e] in a long term uptrend
{881-2435}.
The long
Treasury fell, remaining 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) but is near
challenging its recent uptrend.
GLD declined
fractionally, ending 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)---but also finished in a very short term
uptrend.
The dollar fell,
breaking the recent pattern of acting in reverse of GLD and TLT, and 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: the
Averages remain in the recent very tight trading range. As long as that is the case, a down day is
not really a concern. Indeed as I noted
yesterday, that kind of tight consolidation in which key support levels are not
being challenged, suggests that investor enthusiasm is only taking a rest. Of course, many are trumpeting the ‘sell on
the news’ thesis as regards the inauguration.
We will know that by day’s end. My
assumption that the indices will challenge the 20000/2300 level remains intact.
The GLD, TLT and
UUP correlations appear to be breaking apart.
Wednesday, they broke their inverse relations to stocks; then yesterday,
they all traded in unison.
The
Trump rally versus other post-election gains (medium):
Fundamental
Headlines
Yesterday’s
economic improved: jobless claims fell, the January Philly Fed index was strong
and December housing starts were better than expected though building permits
(i.e. future starts) were less. That
evened up this week’s dataflow, making this a neutral week---meaning the Wall
Street euphoria is still not showing up in the numbers.
Overseas,
following Yellen hawkish comments, the ECB left rates unchanged also keeping
its bond purchase program at current levels.
The commentary following the meeting was mostly Draghi whining about the
weak EU economy as a rationale for continuing an easy monetary policy.
***overnight,
Yellen gives yet another speech---this one with a dovish tone.
***overnight,
December UK retail sales fell; fourth quarter Chinese GDP, industrial
production and retail were mixed.
The major focus of
the day was today’s inauguration and what that will mean in terms of the coming
changes.
Bottom line: now
the fun begins. We will soon start to
see just how aggressive the Donald is going to be on all the issues that he
pounded on during the campaign. While everyone has an opinion on the magnitude
and speed of the implementation of change, I am sure that there will be many
surprises---both good and bad. That likely
means volatility in the news flow and, for all us investors, securities
prices. Ultimately, what we want to know
is how new fiscal/regulatory policies will impact corporate profits and P/E’s
(interest rates). My qualitative optimism
regarding the positive outlook for those elements notwithstanding, until there
is some clarity on them, I am keeping my quantitative optimism under
wraps.
Whatever occurs,
the next year will likely to exciting.
We can only hope that this comes in the form of a major
fiscal/regulatory transformation and as well as a more rationale foreign
policy.
Still my task is
to quantify the effect of this (hopefully) new economy and build it into our
Models. Unfortunately, at this time, when
I plug in many of the optimists’ assumptions about the impact of Trump policies
on corporate earnings, our Valuation Model doesn’t produce a Fair Value that
comes close to current price levels. Hence, I will continue to Sell Half of any
stock that reaches its Sell Half Price and any company that fails to meet the
minimum fundamental criteria for inclusion in our Universe.
My
thought for the day: too many investors spend too much of their time worrying
about eking out a higher return on their portfolio when that time would be
better spent figuring out how to save more money.
Investing for Survival
Ten
life lessons you learn too late.
News on Stocks in Our Portfolios
Revenue of $21.8B (-1.2%
Y/Y) beats by $160M.
Revenue of $16.86B (-0.4%
Y/Y) beats by $90M.
Schlumberger (NYSE:SLB): Q4 EPS of $0.27 in-line.
Revenue of $7.11B (-8.1%
Y/Y) beats by $40M.
Economics
This Week’s Data
Other
Are
Trump and the Fed on a collision course? (medium):
Update
on student loans (short):
No,
this is the real update. The Education
Department has been fabricating the numbers (medium and a must read):
Economic
update from our favorite optimist (medium):
Send
this to the ‘lower oil prices are an unmitigated positive’ crowd (short):
Inflation
and oil (short):
Donald
and the dollar (short):
Politics
Domestic
International
NATO
and its financial obligations (short)
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for Survival’s website (http://investingforsurvival.com/home)
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