The Morning Call
3/22/17
The
Market
Technical
The indices
(DJIA 20668, S&P 2344) had their worse day in months. Volume popped; breadth was weaker. The VIX (12.5) was up 11%, bouncing off of
the lower boundary of its very short term uptrend and ending below, but very
close to, its 100 day moving average, below its 200 day moving averages (now
resistance) and in a short term downtrend.
It appears that the thesis that the period of complacency could be ending
remains in place.
The Dow closed
[a] above its 100 day moving average, now support, [b] above its 200 day moving
average, now support, [c] in a short term uptrend {19104-21431}, [c] in an
intermediate term uptrend {11884-24736} 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 {2234-2568},
[d] in an intermediate uptrend {2072-2676} and [e] in a long term uptrend
{881-2561}.
The long
Treasury was up 0.86%, but closing right on its 100 (now resistance) below its
200 day moving average (now resistance) and in a very short term downtrend.
GLD rose 0.82%, finishing
above its 100 day moving average (now support), below its 200 day moving
average (now resistance) and within a short term downtrend.
The dollar fell,
ending below its 100 day moving average (now resistance), above its 200 day
moving averages (now support) and in a short term uptrend.
Bottom line: investors
seemed to have realized that everything is not awesome, prompted by indications
that Trumpcare isn’t going to occur on schedule (this Thursday); and as a
result, tax reform and infrastructure spending won’t either. Both of the Averages closed well below the
lower boundaries of their very short term uptrends.
If they remain
below those boundaries through the close today, the trends will be
negated. However, even if that occurs, investor
psychology has been so strong for so long, it is too soon to say anything other
than the Market had a bad day. As always
follow through is the key. If we do get
further downside, the next visible support level is the lower boundaries of the
indices’ short term uptrends. While that
maybe another 5% lower (1) it is probably unrealistic for investors to have
expected the current sustained rally to have continued without some kind of
correction and (2) until those short term uptrends are successfully challenged,
there is no reason to assume that viability of the current bull market is in
question.
Who
are the buyers and sellers? (medium):
Fundamental
Headlines
Only
two minor datapoints were released yesterday: the fourth quarter current account
deficit was less than expected while month to date retail sales growth declined
from the prior week.
Overseas,
February UK inflation came in hotter than anticipated; in fact, it was above
the Bank of England’s stated goal.
What
appeared to be driving yesterday’s Market was that the ongoing internal GOP
battle over healthcare reform seems deadlocked---meaning a possible delay in
its enactment which in turn means a delay in tax reform and healthcare
reform. I don’t believe that delay
implies defeat. Indeed, I have repeated
opined that we were likely to see healthcare reform, tax reform and
infrastructure spending in some form. My
problem has been that I thought that investors were too optimistic regarding
both the magnitude and timing of their passage.
That notion looks like it has at long last began to infringe on
perceptions.
Bottom
line: to be clear, the Trump euphoria could return quickly if the GOP works out
a healthcare compromise that will insure passage in short order; and Monday may
be soon forgotten. However, even if that doesn’t occur, investors recognizing their
inflated euphoria about a Trump fiscal/regulatory agenda (if indeed that is
what is happening) doesn’t mean the Market is starting to mean revert. Much more has pushed valuations to current
heights than just the post-election happy dance---not the least of which are
two decades of fiscal irresponsibility and a decade on monetary irresponsibility. It is only when Market participants realize
the likely consequences of those problems will they return stock prices to Fair
Value. The question is, do they figure
it out before the fact or does reality have to smack them between the eyes with
a 2x4?
The
latest from Doug Kass (medium):
More
on valuations (medium):
A
look at adjusted EPS (medium):
My
thought for the day: the most important portfolio management decision you can
make is how to allocate your assets (how you divide up your portfolio between
stocks and bond, between international and domestic stocks and among
alternative asset classes, e.g. REITs, MLP’s gold, etc.) Every portfolio reflects that decision
whether it is done consciously or not.
So it is crucial that we objectively see the tactical and strategic
choices before us which will allow us to move ahead in a productive way that’s
likely to satisfy our specific investment goals.
This is a subtle
but powerful point because if you can recognize the true nature of the
portfolio options available, that will help you make intelligent choices. Thinking in these terms will keep you focused
on the risks you’re taking---and as I harp on continually, risk is far and away
the most important element to control in portfolio management. Your choices are almost limitless---I included
only a few above. But making those
choices carefully is an important element in keeping you out of trouble; because
there’s overwhelming evidence that you can’t earn a decent return in the long
run unless you have a solid plan for steering clear of big mistakes in the
short term.
Investing for Survival
The
trick is to survive.
News on Stocks in Our Portfolios
Revenue of $8.43B (+5.0%
Y/Y) in-line
Economics
This Week’s Data
Month
to date retail chain store growth slowed slightly from the prior week.
Weekly
mortgage applications fell 2.7% while purchase applications declined 2.0%.
Other
Jobs
that have been ‘insourced’ into the US (medium):
More
on declining used car prices (medium):
Here
is a much broader look at bank lending (medium):
Politics
Domestic
Current problems
with Ryancare (medium):
International
Kicking butt at the UN (medium):
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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