The Morning Call
1/25/17
The
Market
Technical
The indices
(DJIA 19912, S&P 2280) bounced hard, but remained within the tight range
dating back to mid-December. Volume
fell, but remains at elevated levels; breadth improved. The VIX (11.0) fell 6%, closing below the upper
boundary of a very short term downtrend, below its 100 and 200 day moving
averages (now resistance), in a short term downtrend and is once again nearing
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 {18560-20600}, [c] in an
intermediate term uptrend {11708-24558} 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 {2167-2510},
[d] in an intermediate uptrend {2030-2631} and [e] in a long term uptrend
{881-2500}.
The long
Treasury fell, closing right on the lower boundary of a five week uptrend, 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).
And:
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 gained
slightly, finishing 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: while
the Averages remained within the recent tight trading range, their strong
performance yesterday suggests that they may have begun another attempt to
challenge 20000/2300---which has been my assumption. I await the results.
After a two day
hiatus, TLT, GLD and UUP are back in the correlated price action that existed in
the prior weeks. The difference this
time is they are supporting the positive outlook of stocks.
The
latest from John Hussman (medium):
Fundamental
Headlines
The
US economic data reported yesterday was mixed: month to date retail chain store
sales grew at the same pace as the prior week, the January Markit flash
manufacturing PMI and the January Richmond Fed manufacturing index were ahead
of estimates while December existing home sales (primary indicator) were well
below forecasts.
Overseas, the
January Japanese Markit flash manufacturing PMI was up versus its December
reading.
Politics
continued to dominate the headlines.
Tuesday
with Trump:
(1)
bars EPA from awarding any new contracts or grants.
(2)
signs executive order advancing the construction of the
Keystone and Dakota pipelines,
(3)
meets with auto industry execs to encourage auto production
in the US
In
addition, Speaker Ryan defended the border tax proposal. As you know, while I like the goal of
reducing corporate taxes, I think this idea a particularly poor way of doing
it. I am not the only one:
Bury
the border adjustment tax (medium and a must read):
Goldman
on the impact of the border tax on the oil industry (medium):
Protectionism
was costly in the past and it won’t be any different in the future (medium)
Trade
and world peace (medium):
And
in an attempt to not be totally left out of the party, Senate democrats
proposed a $1 trillion infrastructure bill.
If we believe GOP leaders, that kind of spending is not apt to get congressional
approval; although if we believe the Donald’s comments on more infrastructure
spending, it could set up an interesting dynamic between the three. In the end, the magnitude of the federal debt
suggests that massive infrastructure spending is unlikely in the absence of
offsetting cuts.
Bottom line: the
Donald continued on the roll, putting the reins on the EPA and moving the
Keystone pipeline forward. Both part of
his campaign promises and both a plus for the economy. On the other hand, pressuring the car
companies to do his bidding is still back door regulating and not good. To repeat myself, if Trump wants to change the
law and gains congressional approval, great.
But I don’t think bullying specific companies adds to this country’s
economic growth prospects.
In addition, the
GOP border tax proposal, in my opinion, is a big negative---indeed, it is more
of a negative than the EPA restraints and the Keystone pipeline are
positives. The good news is the border
tax is still only a gleam in Paul Ryan’s eye.
So, hopefully, it will be dramatically revised or done away with
altogether.
Net, net, so far
Trump’s actions contain both pluses and minuses for the prospects for economic
and corporate profit growth. To date,
not enough has changed to warrant any revisions to our forecast. Indeed, the policies most likely to alter our
outlook are tax reform and infrastructure spending and we have seen nothing
along those lines except the house border tax proposal---which, in my opinion,
is a negative. Hence, our Model’s Fair
Value hasn’t changed, it is as yet unclear that the policies needed to make changes
will be enacted and most importantly, even if changes do occur in Fair Value,
it is highly unlikely that they will be sufficient to get Fair Value remotely
close to current price levels.
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: is a quote from Warren Buffett "Investing is not a
game where the guy with the 160 IQ beats the guy with a 130 IQ." Successful investors are those who know their
limitations, keep their heads cool, and act with discipline. You can't measure
that.
Investing for Survival
There
is no perfect definition of risk.
News on Stocks in Our Portfolios
Revenue of C$3.22B (+1.6%
Y/Y) beats by C$780M.
Canadian National Railway (NYSE:CNI) declares C$0.4125/share quarterly dividend, 10%
increase, from prior dividend of
C$0.375.
Revenue of $23.29B (-1.2%
Y/Y) beats by $100M.
Revenue of $2.47B (-0.4%
Y/Y) beats by $10M.
United Technologies (NYSE:UTX): Q4 EPS of $1.56 in-line.
Revenue of $14.66B (+0.1%
Y/Y) misses by $40M
Economics
This Week’s Data
Growth
in month to date retail chain store was unchanged from the prior week.
The
January Markit flash manufacturing PMI was reported at 55.1 versus December’s
reading of 54.2
December
existing home sales decline 2.8% versus expectations of a 1.0% fall.
The
January Richmond Fed manufacturing index came in at 12 versus the prior reading
of 8.
Weekly
mortgage applications rose 4.0% while purchase applications were up 6.0%
Other
The
Bank of China continues to ease (short):
The
continuing need for banking reform (medium and a must read):
US
business cycle report (medium):
The
curse of demographics (medium):
Politics
Domestic
Did Obamacare’s
expansion of Medicaid save lives? (medium):
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
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Service.
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