The Morning Call
3/28/17
The
Market
Technical
The indices
(DJIA 20550, S&P 2341) ended slightly lower, following a big intraday
selloff. Volume fell; breadth was
weak. The VIX (12.5) fell 3 ½ %, ending
above the lower boundary of its very short term uptrend, back below its 100 day
moving average after having reverted to support on Friday (I am putting that
call in abeyance until there is follow through one way or the other), below its
200 day moving average (now resistance) and in a short term downtrend. Yesterday’s pin action suggests that there are
still a lot of buyers (complacency) around.
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 {19148-21431}, [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 {2238-2572},
[d] in an intermediate uptrend {2072-2676} and [e] in a long term uptrend
{881-2561}.
The long
Treasury was up 0.5%, and remained above its 100 day moving average (now support),
below its 200 day moving average (now resistance), in a very short term
downtrend and near a minor resistance level.
GLD rose 0.5%, finishing
above its 100 day moving average (now support), below but near its 200 day
moving average (now resistance) and within a short term downtrend.
The dollar fell
0.5%, ending below its 100 day moving average (now resistance), above but near
its 200 day moving averages (now support) and in a short term uptrend.
Bottom line: I thought
that the indices did well yesterday, recovering from the big initial down
draft. If they can follow through to the upside, it will do a lot to address
the issue I posed on Saturday---is the recent sell off noise, reflects consolidation
or the start of a directional change.
Alarm
bells ringing on Trump trade (medium):
Fundamental
Headlines
Only
one US economic datapoint was released yesterday: the March Dallas Fed
manufacturing index came in below estimates.
Overseas,
March German business sentiment rose to a six year high; OPEC agreed to ‘evaluate’
its production cut plan.
NY Fed says
declining oil prices due to drop in demand (medium):
Investors
got a roller coaster ride yesterday as the Market seemingly continued struggled
with the implications of the defeat of the healthcare bill; specifically,
whether it was only a minor setback and good things still lie ahead for tax reform
and infrastructure spending or it signaled the likely demise of the Trump/GOP
fiscal reform. That may remain an open
question for a while as a tax bill is likely weeks away.
That said, we
know whatever occurs, the Trump trade has taken a heavy body blow; so it seems
probable that some portion of the 300 point post-election rally in the S&P
will get taken back.
We also know
that (1) the $1 billion in tax savings from the repeal of Obamacare will not be
available to offset tax cuts and (2) the
border adjustment tax continues to lose support; it being the source of another
$1 billion in tax revenue that was also expected to fund tax cuts. That, at least, suggests that there could be
more disappointment ahead for the dreamweavers.
Certainly, it is too soon to write off Trump/GOP proposals as
meaningless but it seems reasonable to assume a scaled back version of the
original hype.
The internal GOP
clash on taxes (medium):
In fact, as I have
argued repeatedly, given the current magnitude of the budget deficit and the
federal debt, any action to reduce tax revenues or increase spending would do
more harm to the economy than benefit. So
I believe that the good news scenario is revenue neutral tax reform and a prioritizing
of spending versus a big increase. That
is not apt make a lot of investors happy.
So it also seems reasonable that even more of the post-election rally could
be recouped.
Bottom line: the
economy continues to stumble ahead, perhaps with a bit more consistency than
was apparent six months ago. In
addition, its future growth will almost surely aided by the deregulatory
efforts of the Donald and may very well be helped more if the GOP can pass a
simpler and fairer tax bill.
As far as the valuation
question goes, for me at the moment it has a technical component: will the
taking back of the Trump trade halt at the lower boundary of the indices short
term uptrends or will return to levels of last November?
Declining
sentiment (medium):
Current
fund managers’ asset allocation (medium):
My
thought for the day: one of the most
important thing an investor (or anyone for that matter) to know is what he
doesn’t know. Quoting Charlie Munger:
“If you play games where other people have the aptitudes
and you don’t, you’re going to lose. And that’s as close to certain as any
prediction that you can make. You have to figure out where you’ve got an edge.
And you’ve got to play within your own circle of competence.”
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