The Morning Call
2/24/17
The
Market
Technical
The indices
(DJIA 20810, S&P 2363) lifted modestly---again, the Market seems to be
taking a breather as it works off an overbought condition. Volume fell (for the fifth day in a row), but
remained at a high level; breadth was strong but did weaken a bit. The VIX (11.7) was down slightly, finishing
below its 100 and 200 day moving averages (now resistance) and in a short term
downtrend but is near the lower boundary of its intermediate term trading range
(10.3)---leaving complacency at a near record high level.
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 {18804-20862}, [c] in an
intermediate term uptrend {11782-24634} and [d] in a long term uptrend {5751-23298}.
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 {2202-2536},
[d] in an intermediate uptrend {2050-2651} and [e] in a long term uptrend
{881-2561}.
The long
Treasury rose, continuing the process of building a pennant formation, but remained
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 up 1%, closing
within a very short term uptrend and above its 100 day moving average (now
support). But it finished below its 200
day moving average (now resistance) and within a short term downtrend.
The dollar fell,
ending above its 100 day moving average (now support), its 200 day moving
averages (now support) and in a short term uptrend.
Bottom line: yesterday’s
mild action by the Averages was normal as they consolidate a very overbought
condition. Remember that they did exactly the same thing the last time this
occurred; that is, prices consolidated by going sideways in a very narrow range
for a time instead declining. That
suggests to me that there remains underlying strength in the Market and that the
assumption has to be that the Averages are on their way to challenging the
upper boundaries of their long term uptrends.
Fundamental
Headlines
Yesterdays’
US economic data was mixed: weekly jobless claims were up but just barely and
fractionally more than anticipated; the January Chicago Fed national activity
index well below expectations while the February Kansas City Fed manufacturing index
advanced nicely over its January reading.
So far, in a very slow week, statistically speaking, the numbers are
evenly matched up and only two more are scheduled for today. So if this week ends ups anything but
neutral, it won’t be by much.
Overseas,
there was no release of statistics but there were reports that the EU and ECB
are at odds over Monti Dei Paschi rescue while the IMF told Greece that it must
make further structural changes before assistance can be provided. Leaving these two problems unresolved is a
lot worse news than a couple of poor datapoints.
In
Thursday with Trump, Treasury Secretary Mnuchin suggested that any tax bill
will likely not be forthcoming until August and perhaps later. He also referred to the proposal as tax
reform not a tax cut. I maybe reading
more into the change in semantics, but certainly hints that the tax plan will
be revenue neutral. Later, in an
interview, Trump said that he supports ‘some form of a border tax’. Finally, late in the day, rumors circulated
that infrastructure spending legislation was being put off until 2018. I have no idea what all this means but it
seems likely to create more uncertainty about key economic proposals.
Bottom line: we
wait for an economic plan, an Obamacare repeal and replace plan, a possible re-do
of Dodd Frank and multiple re-sets of trade treaties. At this moment, investors are basing their
buy/sell decisions on leaks, rumors and suppositions. Not that possible positive outcomes shouldn’t
be taken into consideration in valuing equities. But at the moment, virtually nothing concrete
has happened with respect to tax cuts, repeal of Obamacare and infrastructure
spending and yet stocks are at all-time highs---suggesting that they are priced
for perfection. Not owning a decent cash
position at this time, is, in my opinion, a huge mistake.
Only
blind faith works in this Market (medium):
Update
on dividend cuts (short):
My
thought for the day: Warren Buffett has famously said---be fearful when others
are greedy and be greedy when others are fearful. So I ask the question, were you greedy in
2009 and are you fearful today? If the
answer is no, then join the ranks of ‘others’.
The problem with most ‘others’ is that their expectations are based on
what happened recently. They should
learn that hindsight is not foresight.
The better solution is to have a plan (model) that guides them irrespective
of their greed or fear; a plan that can be put into action regardless of what
happens in the Market tomorrow.
Investing for Survival
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myth of passive investing.
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
February Kansas City Fed manufacturing index was reported at 14 versus January’s
number of 9.
Other
Decline
in gasoline demand maybe a problem (medium):
And
copper as well (short):
Politics
Domestic
International
The
latest from North Korea (medium):
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