The Morning Call
4/12/17
The
Market
Technical
The indices
(DJIA 20651, S&P 2353) drifted lower, repeating the recent pattern of
moving big in early trading then spending the day getting back to neutral/near
neutral. Both remained below the upper
boundaries of their very short term downtrends. Volume rose; breadth was
mixed. The VIX (15.0) rose 7 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 second day
(now resistance; if it remains there through the close on Thursday, it will
revert to support) and above the upper boundary of its a short term downtrend
for a second day (if it remains there through the close on today, it will reset
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 {19292-21635}, [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 {2258-2591},
[d] in an intermediate uptrend {2084-2688} and [e] in a long term uptrend
{905-2591}.
The long
Treasury rose 1%, remaining above its 100 day moving average (now support),
below its 200 day moving average (now resistance), above a minor resistance
level (on its seventh try), in a very short term downtrend and in a short term
trading range.
GLD was up 1 ½ %,
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 Friday,
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: more
of the same, down big in the morning, then recovering to near flat by the
close. As I have noted, we appear to be in
a faceoff between the bulls and bears, with the bulls buying the dips and the bears
selling the rips. So the bottom line
hasn’t changed: ‘it seems like no matter
the import of a headline (development), it is not enough to jar either buyers
or sellers loose from their pre-existing investment scenarios. So it would appear that it will take
something extraordinary to break that mindset.’
The ostensive
reason for the early morning decline was concern over the turmoil on the
international scene (Syria/Russia and North Korea/China). Stocks blew off those potential problems as
the day wore on; but the VIX, gold, TLT and the dollar didn’t. As noted, they all started breaking
resistance/support levels, indicating a change in trend. History suggests that fears over an
international incident generally do not lead to a long term alteration in Market
direction. So I am somewhat skeptical
that VIX/gold/TLT/dollar are leading indicators of such in this case. Still price is truth; so if that divergence
continues, we need to be cognizant that other factors may be at work.
The
absence of fear (medium):
Fundamental
Headlines
There
were a couple of minor economic indicators released yesterday: the March small
business optimism index came in slightly below estimates and month to date
retail chain store sales improved from the prior week.
Overseas,
February EU industrial production disappointed; March UK inflation came in over
the BOE’s target; March German economic conditions index and investor sentiment
both rose; and March Chinese auto sales were better than expected.
***overnight,
March Chinese PPI and CPI were reported below estimates.
Aside
from the video of the passenger getting dragged off of that United flight, air
and print volume focused on the international turmoil. As concerning as they may be, in my opinion, neither
Syria nor North Korea is worth going to war over. True, the risk needs to be included in the
price of equity. But the odds are so low
and the situations transitory enough that, as I said above, I don’t see this as
any catalyst for the bulls rethinking their valuation models.
Bottom line: I
think that 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.
Corporate
pension plans moving out of stocks into bonds (medium):
My
thought for the day: one of the biggest mistakes investors make is setting their
expectations too high. For some reason,
they assume that (1) the average Market performance is the worst they can do,
and (2) even worse, they will always make the optimal choice when faced with a
difficult one. Remember, if your
expectations are flawed, then the way you respond when things don’t go as
expected is probably going to be flawed too.
Investing for Survival
Fees
matter.
News on Stocks in Our Portfolios
Procter & Gamble (NYSE:PG) declares $0.6896/share quarterly dividend,
3% increase from prior dividend
of $0.6695.
Economics
This Week’s Data
Month
to date retail chain store sales were up more than in the previous week.
Weekly
mortgage applications rose 1.5% and purchase applications were up 3.0%.
March
import prices fell 0.2%, in line; export prices increased 0.2% versus forecasts
of +0.1%.
Other
Greg
Mankiw on airline overbooking (short):
Politics
Domestic
International
China sends message to North Korea
(medium):
G7 fails to agree on Russian
sanctions (medium):
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