The Morning Call
2/2/17
The
Market
Technical
The indices
(DJIA 19890, S&P 2279) bounced slightly yesterday. Volume increased and remains at elevated
levels; breadth improved, just barely. After
a very volatile day, the VIX (11.8) fell, touching the lower boundary of its
intermediate term trading range (10.3) and then bouncing. It remained below its 100 and 200 day moving
averages (now resistance) and in a short term downtrend.
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 {18643-20683}, [c] in an
intermediate term uptrend {11740-24592} and [d] in a long term uptrend
{5730-20736}.
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 {2177-2520},
[d] in an intermediate uptrend {2034-2635} and [e] in a long term uptrend
{881-2500}.
The long
Treasury declined, remaining in a very short term downtrend, near the lower
boundary of its short term trading range and below the 100 day moving average
(now resistance), falling further below its 200 day moving average (now
resistance).
GLD was down,
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).
The dollar rebounded
slightly, but finished above to its 100 day and 200 day moving averages (now
support) and in a short term uptrend.
However, it continues to develop a very short term downtrend and is very
near its 100 day moving average.
Bottom line: yesterday
was a relatively quiet day for the Averages, finishing within their trading
ranges dating back to mid-December but below the 20000/2300 levels. I am waiting for a move below the
aforementioned trading range or above 20000/2300 as an indication of Market
direction. Until then, patience.
Fundamental
Headlines
Yesterday
US economic data was quite mixed: the January Markit manufacturing PMI and the
January ISM manufacturing index were ahead of estimates; the January ADP
private payroll showed very strong job growth; on the other hand, weekly
mortgage and purchase applications declined, January light vehicle sales were
less than anticipated and December construction spending was well below
expectations.
Overseas
was a similar picture: January Chinese manufacturing PMI was slightly below
forecast while the nonmanufacturing PMI was better; the January UK
manufacturing PMI was in line.
Wednesday
with Trump:
(1)
issues warning to Iran.
Another red line? I suspect that
Iran wants to know that answer.
(2)
black balls CNN
(3)
introduces his nominee for the Supreme Court
The
FOMC completed its meeting yesterday, leaving interest rates and its balance
sheet unchanged. The language in the subsequent
press release was almost identical to the previous one with the exception of a
bit stronger tone on inflation. However,
it was not enough to make one think that a rate hike will occur near term.
Street reaction (medium):
And
(short):
***overnight,
the Bank of England left key interest rates unchanged and upgraded its economic
outlook.
Bottom
line: still the same: ‘the economy is not providing a lot of
upbeat data; and Trump’s early actions (corporate interventions, talking the
dollar down, his anti-free trade policy proposals) or lack thereof (absence of
any visibility of any tax and infrastructure plans) will likely not make
conditions any better. As I have said
before, much of this early currency/trade maneuvering may just be establishing
a negotiating position from which he intends to level a playing field that he
believes has been unfairly tilted against the US. Even assuming that he gets everything that he
wants, the Market issue is how much damage gets done to the visibility of
corporate profits in the interim.
Further, I have presented a lot of data that
argues that the math is against any massive tax cuts or infrastructure spending
measures---which were a primary reason for all the initial euphoria about the
Trump economy. Don’t get me wrong. The tax code can be rationalized and made
fairer; but without cutting total receipts dramatically. In addition, many of Trump’s deregulation
executive orders will undoubtedly reduce government spending which can then be
reapplied to more economically beneficial infrastructure investments. But the point here is that, in my opinion,
given the huge federal budget deficit and debt, trillions of dollars in tax
cuts and infrastructure spending is wishful thinking---and that too is apt to
be less than positively received by investors.
***overnight,
the Japanese government has decided to invest billions in US infrastructure
projects. If this pans out, it is like a
wet dream becoming a real life experience.
Finally, I worry about his name calling and
other acts of incivility. I can’t
imagine that helps in making a deal or moving a controversial policy
forward. It certainly does not dignify
the office. Moreover, it tends to cloud
those positive polices that he is implementing---again, not Market
friendly.
Small wonder that investors may be
developing heartburn---and at valuation levels that leave little room for
error. I would continue to sell a portion of my successful positions and get
rid of my losers.’
Update
on valuation (medium):
My
thought for the day: never underestimate the irrationality of the investor
herd. Think Madoff, think tech stocks
circa 2000, think mortgage backed securities circa 2008. It may be easy to recognize folly but
impossible to predict its depth and duration.
Think today.
Investing for Survival
Myths
in investing #2:
http://www.pragcap.com/the-biggest-myths-in-investing-part-2-the-stock-market-is-where-you-get-rich/
News on Stocks in Our Portfolios
Revenue of $2.92B (-2.3%
Y/Y) beats by $60M.
Economics
This Week’s Data
The
January manufacturing PMI was reported at 55.0 versus expectations of 54.3.
The
January ISM manufacturing index came in at 56.0 versus forecasts of 55.0.
December
construction spending fell 0.2% versus estimates of an increase of 0.2%.
January
light vehicle sales were slightly below projections.
Weekly jobless claims
fell 14,000 versus consensus of a 6,000 decrease.
Fourth
quarter nonfarm productivity rose 1.2% versus expectations of a 1.2% increase;
unit labor costs were up 1.7% versus estimates of up 1.8%.
Other
Who
pays for ‘the wall’ (short):
Update
on oil economics (medium):
Politics
Domestic
International War Against Radical
Islam
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