The Morning Call
4/25/17
The
Market
Technical
The indices
(DJIA 20763, S&P 2374) soared on the results on the French election. However, volume fell and breadth barely
improved; indeed, the flow of funds indicator was negative. Both ended above the upper boundaries of
their very short term downtrends. If they
close there today, those trends will be negated. The VIX (10.8) was monkey hammered (down 26%),
closing below the lower boundary of its very short term uptrend (if it remains
there at the close today, that trend will be voided), below its 100 day moving
average (now support; if it stays there through the close on Wednesday, it will
revert to resistance), below its 200 day moving average (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 {19413-21635}, [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 {2273-2606},
[d] in an intermediate uptrend {2094-2698} and [e] in a long term uptrend
{905-2591}.
The long
Treasury declined by ½ %, 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 held its uptrend since mid-March.
And:
GLD fell, 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 gapped
down 1%, ending right on 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.
Oil continued to
decline.
Bottom line: I
often say that price is truth; and the truth is that investors got jiggy with
the results of the French elections (i.e. removing fears of a French exit from
the EU and hence improving the economic outlook for the EU) and rumors that
Trump wants cut taxes even if that boosts the budget deficit. However, the strong price performance notwithstanding,
volume shrank, breadth was virtually unchanged, and both index gapped up on the
open and didn’t fill that gap. I have
pointed out before that in the world of technicians, gaps are made to be filled. The only question would be ‘when’. Finally, the bond market continues to point
at economic softness. Certainly not a
sign of a tax cut and a larger deficit.
Still:
Who is right,
stocks or bonds? (medium):
Gap
repricing without price discovery (medium):
Fundamental
Headlines
Yesterday’s
economic stats were mixed: the March Chicago national activity index was well
below forecasts while the April Dallas manufacturing index was below its March
reading but above consensus.
Overseas,
the April German business climate index came in above expectations.
The
major news items of the day were:
(1)
the results of the French elections which was clearly
considered a positive by the Markets because a middle of the road candidate is
now in the finals. Everyone is assuming
that he will beat the anti-EU finalist; and that in turns builds confidence
about the continued strength in the EU economy.
Mohamed El Erian on the French election (medium):
(2)
Trump was reported to be pushing for major tax cuts
irrespective of their impact on the budget, i.e. with no offsetting tax
increases or spending cuts. That got the
Trumpflation juices flowing. Not to be
spoil sport but I have opined previously that [a] he would likely get a lot of pushback
from fiscal conservatives on any increase in the budget deficit, enough perhaps
to nix the deal and [b] raising the federal debt will likely have more negative
effects on the economy than the tax cut will have positive ones.
Another risk to the reflation
trade (medium):
And as long as we are on the
subject of oil (medium):
***overnight, Trump agreed to delay financing
of the border wall so that the government funding bill due to be voted on
Friday can pass.
Bottom
line: our forecast includes a ‘muddle through’ scenario in Europe. But as you know, I am considering upgrading
it based on improvement in the economic dataflow. Implicit in that outlook is that the EU doesn’t
disintegrate. So the outcome of the
French elections keeps the improvement in our forecast alive.
Trump’s
seeming willingness to raise the federal deficit/debt concerns me. I have oft quoted the Reinhart/Rogoff study
that concludes that countries with federal debt in excess of 90% of GDP suffer
slowing economic growth. The US is at
the doorstep of that 90% barrier. So his
eagerness to be able to put a win in the form of a big tax cut on the political
scoreboard in his first 100 days at the expense of pushing the federal debt
above the 90% level is just more of the same profligate spending foisted on future
taxpayers by past generations of our political class. It is not in the mode of the tax and spending
reforms we (I?) had been led to believe would occur.
Cracks in Ponzi finance
land (medium):
My
thought for the day: fundamentals generally explain a good deal of price action
in first 60-80% percent of a move, but the last 20-30% of a bull market is
typically a blow-off, where the mania runs wild and prices go parabolic.
Investing for Survival
What
is ‘enough’?
News on Stocks in Our Portfolios
Canadian National Railway (NYSE:CNI): Q1 EPS of C$1.15 in-line.
Revenue of C$3.21B (+8.4% Y/Y) misses by C$10M.
Canadian National Railway (NYSE:CNI) declares CAD 0.4125/share quarterly dividend, in line with
previous.
Revenue of $5.68B (-3.7% Y/Y) beats
by $160M.
Revenue of $1.12B (+12.7% Y/Y) beats
by $10M.
Revenue of $9.82B (+3.8% Y/Y) beats
by $550M.
Revenue of $7.69B (+3.8% Y/Y) beats
by $220M.
Revenue of $9.13B (-11.6% Y/Y) beats
by $240M.
Economics
This Week’s Data
The
April Dallas Fed manufacturing index came in at 16.8 versus estimates of 15.0.
Other
More
on student loans (medium):
Politics
Domestic
Rolling back
regulations (medium):
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
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