The Morning Call
1/19/17
The
Market
Technical
The indices
(DJIA 19804, S&P 2271) had another slow day, with the Dow falling and the
S&P rising. Volume declined but
remained at a high level; breadth was negative. The VIX (12.5) was up 5%, 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 is pulling away
from the lower boundary of its intermediate term trading range (10.3)---having
failed to challenge it (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 {18492-20532}, [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 {2160-2503},
[d] in an intermediate uptrend {2024-2625} and [e] in a long term uptrend
{881-2435}.
The long
Treasury fell 1 ¼ %, 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).
GLD declined,
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 jumped
1% on high volume, 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: the
Average traded calmly yesterday, remaining within very tight trading ranges
dating back to mid-December. That kind
of tight consolidation in which key support levels are not being challenged,
suggests that investor enthusiasm is only taking a rest. The only potential sign of trouble is the
rise in the VIX. My assumption that they
will challenge the 20000/2300 level remains intact.
For the first
time in recent trading, GLD, TLT and UUP supported the current optimistic
scenario reflect in stock prices---most of it due to some comments by Yellen
(see below). Let’s see if this
continues.
Fundamental
Headlines
Yesterday’s
US economic data were generally negative: month to date retail chain store sales
growth was well below the prior week’s, the January housing market index was
below estimates, weekly mortgage applications were barely positive while the
more important purchase applications were down, December industrial production
was above estimates but the lowered November revisions more than wiped out the
difference and CPI was in line.
In addition, the
latest Fed Beige Book released yesterday was about as boring as any I have seen
of late---the bottom line being that the economy is improving and inflation is
picking up.
As a cherry on
top, Yellen gave a speech explaining the goals of monetary policy. While I thought she gave us yet another dose
of Fed cluelessness, Market consensus is that she was a bit more hawkish. Of course, that has been her MO for the last
year---a week after a hawkish tone, she sounds a bit more dovish and vice versa. I have opined that this simply reflects her
recognition that the Fed has screwed up and doesn’t know how to correct the
problem. It could also be a (political?)
response to the Donald’s comments on the dollar being too strong. Whatever the reason, I believe that it has
zero information/prediction value.
Overseas,
Chinese home prices rose less than anticipated.
***overnight,
the ECB left rates unchanged also keeping its bond purchase program at current
levels.
Bottom line: the
Donald took a tweeting break yesterday which served to lower the heat in the
headlines. However, there is likely more
of this coming and you never know what his next target will be. Not that Washington isn’t a target rich
environment. It is just that not all
Trump pronouncements fit into the current upbeat economic narrative---trade (tariffs)
and currency (dollar too high) being the most notable. In addition, as I mention every day, he has
been conspicuously silent on the most important elements (taxes and
infrastructure spending) of the aforementioned current upbeat economic
narrative.
As you know, on balance, I am positive about
the economic changes coming from a new Trump administration, the above
notwithstanding. I am just not as
enthused as most investors, even acknowledging that many of his comments are
just initial negotiating positions and the end result will be more positive
than implied those remarks.
However, even
when I plug in many of the optimists’ assumptions about the impact of Trump
policies on corporate earnings, our Valuation Model wouldn’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.
The
latest from Doug Kass (medium):
My
thought for the day: don’t get too wrapped up in predicting the future. On the day before the November election,
there were almost no pundits including Fox news that gave Trump a snowball’s
chance in hell of being elected. The
future is always filled with surprises.
Having an investment process that can adjust to change is much more
important than predicting it.
Investing for Survival
Simple
rules of capitalism.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Growth
in month to date retail chain store sales was considerably less than in the
prior week.
December
industrial production rose 0.8% versus expectations of up 0.6%; however, the November
reading was revised from -0.4% to -0.7%.
The
January housing market index came in at 67 versus estimates of 69.
December
housing starts rose 11.2% versus forecasts of up 110.1%; building permits fell
slightly versus consensus of up slightly.
Weekly
jobless claims fell 15,000 versus projections of an 8,000 increase.
The
January Philadelphia Fed manufacturing index came in at 23.6 versus an
anticipated reading of 16.0
Other
The
latest Fed Beige Book reported that the economy continued to grow at a modest
pace in all regions.
Update on big four
economic indicators. (medium):
Yellen ‘explains’ the
goals of monetary policy (medium):
The
fallacy of the ‘weak dollar’ argument (medium and a must read):
Politics
Domestic
No one is
talking about the high tariffs that already exist on Chinese steel imports
(short):
Chelsea Manning
and Russian hacking---compare and contrast (short):
International
Jamie
Dimon on the eurozone (short):
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