The Morning
Call
4/6/17
The
Market
Technical
The indices
(DJIA 20648, S&P 2352) staged another big intraday reversal yesterday. Only this time instead of initially trading
down (up) big and closing flat or near flat on the day, they advanced smartly
then ended down noticeably. In the
process, the broke above the upper boundary of their short term downtrends,
then closed below them. Volume rose; breadth deteriorated. The VIX (12.9) rose 9 ½ %, ending above the
lower boundary of its very short term uptrend, back above its 100 day moving
average (now resistance; if it remains there through the close on Friday, it
will revert to support), below its 200 day moving average (now resistance) and
in a short term downtrend. Complacency remains
an issue.
http://www.zerohedge.com/news/2017-04-05/vix-term-structure-inverts-amid-french-election-uncertainty
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 {19246-21635}, [c] in an
intermediate term uptrend {11891-24743} 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 {2250-2583},
[d] in an intermediate uptrend {2082-2686} and [e] in a long term uptrend
{905-2591}.
The long
Treasury was up fractionally, remaining above its 100 day moving average (now
support), below its 200 day moving average (now resistance), finishing back
near a minor resistance level, in a very short term downtrend and in a short
term trading range.
GLD was
unchanged, closing above its 100 day moving average (now support), below but
nearing its 200 day moving average (now resistance) and within a short term
downtrend.
The dollar was flat,
ending below its 100 day moving average (now resistance), above but near its
200 day moving averages (now support), in a very short term downtrend and in a
short term uptrend.
Bottom line: technically
speaking, I think we have to look at yesterday’s dramatic turnaround within the
context of the numerous intraday reversals that have occurred recently. Meaning that investors have been
demonstrating manic behavior brought on by rising uncertainty. Buyers or sellers are still there, they are
just more tentative in committing funds.
At the moment, I don’t think that this suggests anything major in a directional
sense; though the longer the current very short term downtrend continues, the
stronger it becomes. As always, follow
through is the key.
The
pin action in bonds, gold and the dollar was erratic and provided little
directional guidance.
Fundamental
Headlines
The
news flow yesterday was bit schizophrenic which clearly got reflected in equity
prices. The economic data started out
strong with a surprisingly upbeat ADP private payroll report, then cooled
dramatically later in the day as both the March services PMI and the ISM nonmanufacturing
index came in below estimates.
***overnight,
the March Chinese services and composite PMI’s hit a six month low.
Then
the ruling class took over and once again proved just how ugly policy making
can be. First of all, it became obvious
that all the happy talk about being close to a compromise on healthcare was
just that---happy talk. The various GOP
factions appear as far apart as ever.
Then Speaker Ryan made clear that the house, the senate and the
president all had different ideas on accomplishing tax reform and that it would
take considerable time to resolve those differences.
Then
the Fed released the minutes from the latest FOMC meeting which carried a much
more hawkish narrative than was conveyed in the Fed statement following that
meeting and the numerous contradictory/confusing Fed official’s comments last
week. It seems more rate hikes and a
quicker unwinding of the Fed balance sheet are much more likely than investors
had thought (dreamed/hoped). Further,
stocks were described generously valued---quite an acknowledgment from the
perpetrator of one of the most egregious mispricing of assets in history. To be clear, I don’t read that as the
assumption of any responsibility for that overvaluation or the recognition that
any monetary policy reversal could have as devastating impact on the Market as I
expect. I do believe that it
demonstrates how completely out of touch with reality this group is and clearly
raises the odds of the risk that monetary tightening could begin just as the
economy is softening.
***overnight,
Draghi stated that there wasn’t sufficient evidence of economic improvement to
warrant a change in monetary policy which (1) is a stunning statement in and of
itself since the EU data has been much better of late and (2) puts the ECB and
Fed in opposition policy wise. That
said, Draghi’s comments were immediately contradicted by the head of the Bundesbank
(sound familiar?)
In addition, it
appears Greece and the EU are near an agreement for the next round of bail out
funds
Bottom
line: the Trumpflation trade took a body blow yesterday; though it could
recover with a strong nonfarm payrolls number on Friday. So all is not lost for the bulls. The Fed’s minutes suggested that it could once
again confirm its near perfect record of being 100% wrong on the economy and
the timing of its policy moves. As you
know, my thesis all along has been that the Fed would be the primary agent of
mean reversal. Still it will likely have
to follow through with this folly in order to ignite the process and that hasn’t
occurred, yet. All that said, this is a
single day of news flow, so it would be foolish to start drawing long term
conclusions about the economy or the Market.
What
could possibly go wrong? (medium and a must read):
Will
we see a melt up? (short):
My
thought for the day: just because you disagree with someone (an idea, an opinion
on a stock) doesn’t mean that it is wrong.
Investing for Survival
Five
financial myths to ignore.
News on Stocks in Our Portfolios
Automatic Data Processing (NASDAQ:ADP) declares $0.57/share quarterly dividend, in line with
previous.
Economics
This Week’s Data
The
March services PMI was reported at 52.8 versus the February reading of 53.8.
The
March ISM nonmanufacturing index came in 55.2 versus expectations of 57.0.
Weekly
jobless claims fell 25,000 versus estimates of an 8,000 decline.
Other
More
on student debt (medium):
Politics
Domestic
International War Against Radical
Islam
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