The Morning Call
4/13/17
The
Market
Technical
The indices
(DJIA 20591, S&P 2344) broke with their recent pattern, opening down
modestly and remaining there. Both continue
to trade below the upper boundaries of their very short term downtrends. Volume
was flat; breadth deteriorated. The VIX
(15.7) rose 4 ½ %, ending above the lower boundary of its very short term
uptrend, above its 100 day moving average (now support), above its 200 day
moving average for a third day (now resistance; if it remains there through the
close today, it will revert to support) and above the upper boundary of its a
short term downtrend for a third day, resetting to a trading range. Complacency remains an issue and we may be
looking at its demise.
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 {19305-21635}, [c] in an
intermediate term uptrend {11936-24785} and [d] in a long term uptrend
{5751-23390}.
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 {2261-2594},
[d] in an intermediate uptrend {2087-2691} and [e] in a long term uptrend
{905-2591}.
The long
Treasury rose on volume, remaining above its 100 day moving average (now
support), below its 200 day moving average (now resistance), above a minor
resistance level, in a very short term downtrend and in a short term trading
range.
GLD was up also
on volume, closing above its 100 day moving average (now support), above its
200 day moving average (now resistance; if it stays there through the close on Monday,
it will revert to support) and nearing the upper boundary of its short term
downtrend.
The dollar was
down, ending above its 100 day moving average (now support), below its 200 day
moving averages (now resistance), below the upper boundary of its very short
term downtrend and in a short term uptrend.
Bottom line: stocks
moved lower without giving investors a roller coaster ride in the process---despite
a steady stream of upbeat headlines (China tongue lashing North Korea, Trump
backing off on firing Yellen, encouraging a lower dollar [currency
manipulation?] and removing the ignominious labels of ‘currency manipulator’ from
China and ‘obsolete’ from NATO).
However, the magnitude of the decline provided little directional
information, suggesting to me that the sellers were still willing to sell into
good news. So the Averages remain stuck
in a fairly tight very short term trading range, reflecting the continuing
standoff of the bulls and bears.
The VIX, gold,
TLT and the dollar continue to challenge resistance/support levels, despite a
less tense geopolitical atmosphere. That
suggests that perhaps their Tuesday’s pin action could have been pointing to a
weak economy and lower interest rates as opposed to reflecting international
fears.
An
end to ‘buy the dips’? (medium):
Commodity
carnage (short):
Fundamental
Headlines
A
couple more secondary economic indicators were released yesterday: weekly
mortgage and purchase applications were up while import/export prices were
mixed. The international data was
equally uninspiring: March Chinese PPI and CPI were reported below estimates.
***overnight,
March Chinese imports and exports were stronger than anticipated.
Geopolitical
events and major reversals in Trump policies bombarded the newswires all day:
The
Chinese continue to threaten North Korea regarding missile and bomb tests. It would appear that the Donald has been
persuasive in gaining aid from the North’s primary benefactor. The question is, what did he have to give up
to elicit that help?
And
it didn’t take long to get, at least, part of the answer. Yesterday, Trump indicated the China would
not be labeled a currency manipulator (of course, it hasn’t been for some time. In fact, in the past year, it has worked to
keep the yuan from falling). In that
same WSJ interview, the Donald reversed himself on two other issues. He said that he liked a weak dollar (supposedly
good for trade; but the economic evidence is not that persuasive and in some
respects is contradictory) and that he has not decided whether or not to
reappoint Yellen (barring an appointment of another Volcker, who cares; the
whole lot of them are Keynesian devotees who continually screw up monetary
policy).
In a second news
conference, Trump backed off his earlier statement about NATO being obsolete.
Secretary
Tillerson was in Russia meeting with Foreign Minister Lavrov and Putin on Syria
and other issues. Reviews of the
following comments were mixed; but talk about a reversal. I thought it a welcome change to see
Tillerson playing hard ball as opposed wimpy, patronizing performances we had
become used to with Kerry.
Bottom line: I
think yesterday’s pin action, i.e. stocks down on good news, illustrates the
point that I made yesterday: ‘we are at one
of those points that the technicals are going to provide more information than
the fundamentals based on the aforementioned notion that both bulls and bears
are viewing those fundamentals within the context of their preconceived
constructs---bulls are finding good in bad news and vice versa. As long as that condition prevails, I am not
sure of the informative value of a fundamental development---not because it
doesn’t provide information, but because that information is being construed to
fit a narrative. Hence, we are not going
to know which piece of information will ultimately trigger capitulation of one
side or the other until after major resistance/support levels start getting
taken out.’
My
thought for the day: diversification is an important component of investment
survival. The key advantages of diversification are the capture of
at least a healthy share of available returns, smoother portfolio performance
and (thus) less volatility. For passive investors, the goal should be the
broadest diversification possible: exposure to the entire market---domestic and
international stocks, domestic and international bonds, REIT’s, gold. For
them, there is no such thing as too much diversification. A passive
investment approach using low-cost index funds via dollar cost averaging would
provide the best investment results for the vast majority of those investors.
Investing for Survival
The
risk in owning index funds.
Subscriber Alert
The
stock price of IBM ($170) has risen above the upper boundary of its buy Value
Range. Accordingly, it is being Removed
from the Dividend Growth Buy List. The
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The stock price
of Apple ($140) has risen above the upper boundary of its Buy Value Range. Accordingly, it is being Removed from the
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News on Stocks in Our Portfolios
Qualcomm (NASDAQ:QCOM)
declares $0.57/share quarterly dividend, 7.5% increase from prior dividend of $0.53.
Economics
This Week’s Data
Weekly
jobless claims fell 1,000 versus expectations of a rise of 9,000.
March
PPI declined 0.1% versus estimates of no change; ex food and energy, it was
flat versus forecasts of a rise of 0.2%.
Other
Politics
Domestic
International War Against Radical
Islam
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