The Morning Call
1/6/17
The
Market
Technical
Yesterday, the
indices (DJIA 19899, S&P 2269) rested.
Volume declined but is still high.
Breadth was mixed again and is beginning to ease off its overbought condition. The VIX (11.7) fell another 1 ½ %, closing below
its 200 day moving average (now resistance), below its 100 day moving average
(now resistance), within a short term downtrend and moved slightly closer to the
lower boundary of its intermediate term trading range (10.3).
The Dow ended
[a] above on its 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] in a short term uptrend {18372-20422}, [c] in
an intermediate term uptrend {11662-24512} and [d] in a long term uptrend
{5720-20271}.
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 {2147-2491},
[d] in an intermediate uptrend {2015-2617} and [e] in a long term uptrend
{881-2419}.
The long
Treasury spiked 1 ½ % on better volume.
It still ended 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).
TLT still has plenty of room to rebound before it meets any of the
multiple resistance levels/ threatens to break any major downtrends.
GLD (112.5) continues
to mimic TLT, rising 1 ½ % 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
continued its pattern of acting in reverse of GLD and TLT, dropping 1% but finishing
considerably above multiple support levels---so it can fall a lot and not challenge
its 100 or 200 day moving averages or its short term uptrend. It did decline well below the (in question) upper
boundary of its intermediate term trading range (I mistakenly wrote short term
trading range yesterday); so I am leaving that trend as a trading range.
Bottom line: my
assumption continues to be that the indices will at least challenge the
20000/2300 levels; and if victorious, there is no resistance between those
levels and the upper boundaries of their long term uptrends. But as you know, I don’t believe any such
challenge (of the upper boundaries) will be successful.
The
real action seems to be in a rebound from extreme positions by TLT, GLD and
UUP. Part of this has been the result of
a huge rise in Chinese short term interest rates which pushed the yuan higher,
so the dollar fell, causing US interest rates to decline and gold to catch a
bid. I have opined several times
recently that if the weakening Chinese economy and the declining yuan
continued, at some point they would start impacting global economies and
markets. That seems to be occurring now. I am making no predictions on how long it
will last or the magnitude of that impact.
But we need to closely monitor events.
For
the bulls (medium):
Fundamental
Headlines
Yesterday’s
US economic data turned mixed: the December ISM nonmanufacturing index and
weekly jobless claims were better than expected while the December ADP private
payroll report and the December Markit services PMI were below estimates.
Overseas,
the December UK services PMI and the December Chinese services and composite
PMI’s were all above their November readings.
As
I noted above, I think that most important development yesterday was the
explosion in the Chinese overnight lending rate. (It hit 80% to give you an idea.) It is more important how long the circumstances
leading to this move last. I have no
clue on that but Kyle Bass seems to think it is not transitory.
***overnight, the
volatility continues.
Currency problems
are now starting to plague Mexico, another major US trading partner (medium):
It
also bears mentioning that Trump continues his campaign of trying to muscle
companies to alter business decisions---yesterday it was Toyota and ATT/Time
Warner. To be sure, to date he has been
getting what he wants. But I am not sure
it is a plus for the US economy long term to have the president imposing his
views on the operating decisions of US corporations. If he wants to present legislation to alter
tax or trade policies and it gets legislative approval, that’s great. Those changes in policies can then become
part of the multiple economic factors that businesses must consider in making
their decisions. But picking individual
companies to threaten over decisions made within the confines of current law is
not the way the free enterprise system works.
And with all due respect to all those overwhelmed by Trump euphoria,
this is a decided negative to the economy.
Bottom line: not only could better business and consumer
sentiment lead to better numbers, but also the actual Trump/GOP fiscal/regulatory
policy changes, if they occur, would very likely do so. This week’s economic data, especially from
overseas, could certainly be a sign of the former; and I have altered our short
term outlook in anticipation of that. However,
I need to see implementation of the latter to alter our long term forecast.
That said, not
everything is coming up roses. Trump
euphoria aside, I don’t see his hammering businesses who are making economic
decisions for the benefit for their shareholders and acting within the law as a
plus. Nor do I think it smart to call
the democratic leader of the senate a clown.
Trump may have majorities in both houses, but he still needs at least a
neutral minority. Reagan used to sip
whisky with Tip O’Neal. Calling
opposition leaders clowns hardly improves your negotiating position. Finally, the recent measures by China to stem
the decline in the yuan have had severe consequences. I am not saying those will persist; but it is
concerning.
My thought for the day:
investors tend to run in herds---bullish or bearish. And investment
institutions herd just as much as individuals.
Investments chosen by one institution often predict the investment
choices of other institutions by a remarkable degree. It’s why market bubbles
occur – in tulips, baseball cards, real estate and stocks.
Investing for Survival
Distrust
forecasts.
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
December Markit services PMI came in at 53.9 versus 54.9 the prior month.
The
December ISM nonmanufacturing index was reported at 57.2 versus expectations of
56.8.
December
nonfarm payrolls rose 156,000 versus estimates of 175,000; however, the
November number was revised from up 178,000 to up 204,000.
The
November US trade deficit came in at $45.2 billion versus forecasts of $44.5
billion,
Other
Quote
of the day (short):
Politics
Domestic
International War Against Radical
Islam
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