The Morning Call
3/14/17
The
Market
Technical
The indices
(DJIA 20881, S&P 2373) had a quiet but mixed day (Dow down, S&P
up). Volume rose, remaining at a high
level; breadth continued to unwind from its overbought condition. The VIX (11.4) fell 2 ½ %, ending below its
100 and 200 day moving averages (now resistance), in a short term downtrend but
in a very short term uptrend---remaining in a rebound off the lower boundary of
its intermediate term trading range.
That could be a sign that the high level of complacency is over; but it
is too soon to tell.
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 {19017-21283}, [c] in an
intermediate term uptrend {11837-24689} 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 {2223-2557},
[d] in an intermediate uptrend {2063-2667} and [e] in a long term uptrend
{881-2561}.
The long
Treasury was down, finishing right on the lower boundary of its intermediate
term trading range---positioning it to make a challenge of that boundary. It is also below its 100 and 200 day moving
averages and in a very short term downtrend.
GLD rose
slightly, closing below its 100 day moving average (now resistance), its 200
day moving average (now resistance) and within a short term downtrend.
The dollar was
up, ending above its 100 day moving average (now support), its 200 day moving
average (now support), in a short term uptrend; however, it has failed to
sustain a new very short term uptrend.
Bottom line: to
all appearances, the Averages are handling the consolidation from an overbought
condition very well. So the assumption continues to be that they are headed for
the upper boundaries of their long term uptrends. However, the pin action in the commodities,
oil, gold and bonds continues to deviate from the stronger economy, higher
interest rate scenario.
Fundamental
Headlines
There
were no economic releases either here or abroad yesterday. Most investor attention was focused on
central bank policy with the FOMC meeting this week and stories out of Japan
that its bank will begin tapering. Part
of this was a debate over the reasons for the seemingly inconsistent behavior
of the bond, dollar and commodities markets.
***overnight,
the UK parliament voted to begin Brexit talks; February Chinese retail sales
were less than anticipated while industrial output was greater.
A
second development that is commanding increasing notice is the price weakness
in the oil market. This could help
explain the weakness in bonds and the dollar.
The oil market
is about to get ugly (medium):
I
tol’ you (short):
Finally,
the CBO issued its scoring of the new GOP version of healthcare. As usual, it created more questions than it
answered. But we knew confusion would
reign on the effects of this legislation right up the vote for passage---assuming
that occurs.
Goldman
believes that the CBO scoring will delay the vote on Trumpcare---which in turn
will delay action of tax cuts.
Bottom line: the
news flow has been slow of late, which has likely helped stocks consolidate quietly
from an overbought condition. That may
be about to change as the data calendar picks up today and the FOMC starts its
meeting. On the other hand, the approaching
storm that is forecast to shut down much of the northeast could slow trading over
the next couple of days.
I continue to
question whether the economy is really as strong as it is being portrayed by
most Street economists, the Fed and the media.
As you know, I upgraded our short term outlook but have not shared the
giddy forecasts that have become the accepted scenario. I am not arguing that the best case can’t
happen; I am arguing that while the economy may get a boost, the timing and
magnitude of best case scenario is not nearly as certain as is currently priced
into stocks. Now that the sausage making
of reform and repeal of Obamacare, tax cuts and infrastructure spending has
begun, it seems likely that the Market will have to reassess the odds of its ‘hopeum’
scenario. The uncertainty apparent in
the bond, oil and currency markets seem to support that notion.
My
thought for the day: during recessions, elections, and Federal Reserve policy
meetings, people become unshakably certain about things they know nothing
about.
More
on valuations (medium):
Investing for Survival
Avoid
using these terms.
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
February small business optimism index was reported at 105.3 versus
expectations of 105.0.
February
PPI was up 0.3% versus estimates of up 0.1%; ex food and energy, it was up 0.3%
versus consensus of up 0.2%.
Other
The
global debt bomb (medium):
Politics
Domestic
International War Against Radical
Islam
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