The Morning Call
4/26/17
The
Market
Technical
The indices
(DJIA 20996, S&P 2388) soared again; this time on slightly higher volume
and slightly better breadth. Both ended above
the upper boundaries of their very short term downtrends for a second day,
negating those trends. The VIX (10.7) was down .75%, closing below the lower
boundary of its very short term uptrend for a second day, voiding that trend, below
its 100 day moving average for a second day (now support; if it stays there
through the close today, it will revert to resistance), below its 200 day
moving average for a second day (now support; if it remains there through the
close on Thursday, it will revert to resistance) and in a short term trading
range.
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 {19424-21646}, [c] in an
intermediate term uptrend {11994-24843} 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 {2275-2608},
[d] in an intermediate uptrend {2094-2698} and [e] in a long term uptrend
{905-2591}.
The long
Treasury declined by 1 ¼ %, but still ended above its 100 day moving average
(now support), below its 200 day moving average (now resistance), in a very
short term downtrend, in a short term trading range and failed to hold its
uptrend since mid-March.
GLD fell 1%, but
still closed above its 100 day moving average (now support), above its 200 day
moving average (now support), in a very short term uptrend and in its short
term downtrend.
The dollar was
down, ending below its 100 day moving average (now support; if it closes there
through the close on Thursday, it will revert to resistance), below its 200 day
moving averages (now resistance), below the upper boundary of its very short
term downtrend and in a short term uptrend.
Oil managed an
increase after seven down days.
Bottom line: four
comments on yesterday’s pin action: (1) both of the indices negated their very
short term downtrends, (2) resistance now exists at former all-time highs
[21228/2402]; if they successfully challenge those levels, then the upper
boundaries of their long term uptrends become the target, (3) the indices
gapped higher for the second day in a row; meaning, they need to fill both gaps
and (4) bonds, gold and the dollar finally were trading in line with a
Trumpflation trade.
Fundamental
Headlines
It
was a busy day for US data releases: month to date retail chain store sales
grew less rapidly than in the prior week, the February Case Shiller home price
index was softer than expected and April consumer confidence fell short of
estimates; however, March new home sales and the April Richmond Fed
manufacturing index were better than anticipated.
Trump
policies held the headlines with:
(1)
an executive order raising tariffs on Canadian lumber. There was a lot of wringing of hands and gnashing
of teeth over its possible negative implications on free trade and NAFTA. However, [a] the US and Canada have been
arguing over lumber imports for decades, so this is nothing new, [b] many had
anticipated that the tariffs would be much higher than announced and [c] he has
objected to Canadian tariffs on US dairy product; so he may be negotiating in
public as he is wont to do. In the end,
this was probably yet another example of Trump’s trade [negotiating] bark being
much worse than his [ultimate solution] bite.
This is an excellent analysis of this issue:
(2)
mounting anticipation of today’s presentation of the
Trump tax plan. If you believe the
rumors, it will include tax cuts with no offsets from spending cuts or other
taxes [again, rumors are that he has given up on the border adjustment
tax]. If you believe past statements
from the house freedom caucus and the senate, that plan will be DOA. If you believe Reinhart and Rogoff, even if a
big net tax cut were to pass, it would be not nearly as positive for the economy
as many believe. And if you believe that
the Trump euphoria is alive and well and as blind as ever, then any negatives may
not matter. Clearly, there are a lot of ‘if
you believe’s. I have no idea what to
believe.
Greg Mankiw on tax policy (medium and a must read):
Bottom line: clearly,
investors are jiggy about the outlook for the economy and the Market. To be sure, I am positive about steps the
Donald has taken toward deregulating the economy and his less negative approach
to trade. Indeed, I have raised both our
short term growth and long term secular growth rates. But I can’t get corporate earnings to a level
that justify current equity prices.
But that is one
guy’s opinion; and at the moment, Mr. Market is saying that I am wrong. The good news is that our Portfolios are
still 50% invested. The bad news is that
they are not 100% invested. However, in
order for me to Buy stocks in their Buy Value Range, I have to have raised cash
before a drawdown; which I do by Selling a portion of a stock that has reached
its Sell Half Range. At that point, I have
suffer with underperformance until the inevitable bear shows its face. But I find some solace in JP Morgan’s reply
to the question ‘How did you become so rich?’ ‘I sold too soon.’
The
passive indexing trap (medium):
My
thought for the day: risk control is one of the most important things in
investing. If you have a losing position that is making you uncomfortable, the
solution is very simple: Get out, because you can always get back in.
Subscriber Alert
I
reported on Monday that CR Bard was being acquired by Becton Dickinson (also
one of our holdings) at a 25% premium above the close on Friday. Since the purchase price now acts a cap to
BCR’s upside potential while its prior price is the downside were the deal to
fall apart, the risk/reward suggests that the time has arrived to Sell
BCR. Accordingly, the Dividend Growth
Portfolio will Sell BCR at the Market open.
Investing for Survival
Savings
versus investing.
News on Stocks in Our Portfolios
International Business Machines (NYSE:IBM) declares $1.50/share quarterly dividend, 7.1% increase from prior dividend of $1.40.
Revenue of $3.42B (+11.4% Y/Y) beats
by $80M.
AT&T (NYSE:T): Q1 EPS of $0.74 in-line.
Revenue of $39.4B (-2.8% Y/Y) misses
by $1.17B.
Revenue of $7.44B (-0.5% Y/Y) misses
by $270M.
Revenue of $20.98B (-7.3% Y/Y) misses
by $370M
Revenue of $15.61B (-1.0% Y/Y) misses
by $110M.
Revenue of $13.82B (+3.4% Y/Y) beats
by $330M.
Revenue of $12.05B (+1.6% Y/Y) beats
by $70M.
Economics
This Week’s Data
Month
to date retail chain store sales grew less rapidly than in the prior week.
The
February Case Shiller home price index rose 0.7% versus expectations of up
0.8%.
March
new home sales jumped 5.8% versus estimates of a 0.6% decline.
April
consumer confidence came in at 120.3 versus forecast of 123.1.
The
April Richmond Fed manufacturing index was reported at 20.0 versus consensus of
16.0
Weekly mortgage
applications rose 2.7% while purchase applications declined 1.0%
Other
Shrinking
the Fed balance sheet may not have an easing effect (medium):
Increase
in chemical sales (medium):
More
on student loans (medium):
Systematic
risk in Chinese debt (medium):
Politics
Domestic
Ahhh, at last, a
partial solution for the student loan problem that only bureaucrats and
politicians could concoct (short):
International
More
pain for the Greeks (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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