The Morning Call
5/2/17
The
Market
Technical
The indices
(DJIA 20913, S&P 2388) turned in a mixed performance yesterday (Dow down,
S&P up). Volume fell; breadth weakened. The VIX (10.1) declined 6 ½ %, closing below
its 100 day moving average (now resistance), below its 200 day moving average (now
resistance) and below the lower boundaries of its short term trading range (if
it remains there through the close on Wednesday, it will reset to a downtrend)
and its intermediate term trading range (if it remains there through the close
on Thursday, it will reset to a downtrend).
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 {19483-21635}, [c] in an
intermediate term uptrend {12015-24864} 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 {2281-2614},
[d] in an intermediate uptrend {2098-2702} and [e] in a long term uptrend
{905-2591}.
The long
Treasury fell 1% on volume, ending above its 100 day moving average (now
support), below its 200 day moving average (now resistance), in a very short
term downtrend and in a short term trading range.
GLD was down,
closing right on its 100 day moving average (now support), above its 200 day
moving average (now support), in a very short term uptrend and in a short term
downtrend.
The dollar rose,
ending right on its 200 day moving average, voiding Friday’s break, below its 100
day moving averages (now resistance), below the upper boundary of its very
short term downtrend and in a short term uptrend.
Bottom line: the indices continued to rest after the
strong Monday/Tuesday performance, which is normal and suggests nothing
directionally. Their upside is now being
marked by their former highs [21228/2402] and the upper boundaries of their
long term uptrends while support on the downside exists at their 100 and 200
day moving averages and the lower boundaries of their short term uptrends.
While I would expect a challenge of the old
highs, the big question in my mind is, will those gap openings which I have
mentioned get closed as part of a near term correction (which would clearly be
the more positive alternative) or will the Averages continue to rise and it
occur on the way down following a Market top?
The long
Treasury, gold and the dollar have begun to act like their investors are
expecting higher rates.
Fundamental
Headlines
Yesterday’s
data flow started the week on really negative footing: personal income and
spending (primary indicators) were less than anticipated as was the PCE price
index; the April ISM manufacturing index and March construction spending (primary
indicator) were below expectations while the April Markit PMI was in line.
Overseas,
the numbers were not any better: April Chinese new orders for manufacturing and
services fell to a six month low.
***overnight,
the April EU Markit manufacturing PMI rose to a six year high.
On
the political front, the good news was that it appears congress has agreed on a
spending bill, forestalling a government shutdown; the bad news is that the
dems once again seemed to have outmaneuvered the GOP (medium):
Bottom line: the
data continues to point to the diminishing post-election-improved-sentiment
boost to the economy; and, rhetoric aside, the Trump/GOP fiscal program is not
proceeding as many hoped. On the other
hand, (1) earnings are surprising to the upside, (2) whether you like the
details of the proposed spending bill, the fear of a government shutdown is
being assuaged, (3) Trump’s deregulation efforts are progressing.
In short, there
is good news and bad news. But the good
news is not good enough to justify current equity valuations. Even if we get some of the promised fiscal
plan, I don’t believe it be as stimulative as many expect; and if it is that
stimulative initially (i.e. bigger deficits), I believe that it will be a net
negative long term. Further, the Fed has
been too easy, missed the window to normalize monetary policy and is now stuck
with a massive balance sheet that has produced egregious asset mispricing and
misallocation which will have to be reversed---we just don’t know when. Excitement alert: the FOMC starts it
regularly scheduled meeting today.
Our Portfolios
have sold a portion of their major winners and all their losers.
Regression
to trend (short):
Mohamed
El Erian: four things to watch this week (medium):
My
thought for the day: assuming that because something
has never happened before, it won't (or can't) happen in the future is an
example of normalcy bias. History is
replete with examples of unprecedented events or once in a millennium occurrences
happening every ten years. They had
never happened... until they did. It is
important for investors to understand it.
Investing for Survival
Myths
in investing #10.
News on Stocks in Our Portfolios
Revenue of $4.6B (+7.0% Y/Y) beats
by $450M.
Revenue of $3.58B (flat Y/Y) beats
by $80M
Revenue of $2.97B (-3.3% Y/Y) beats
by $50M.
Revenue of $2.73B (+11.4% Y/Y) beats
by $70M
Economics
This Week’s Data
The
April Markit PMI manufacturing index came in at 52.8, in line.
The
April ISM manufacturing index was reported at 54.8 versus expectations of 56.5.
March
construction spending fell 0.2% versus estimates of +0.5%
Other
The
Atlanta Fed’s initial second quarter GDP growth estimate at 4.3% (short):
Citi’s
US macro-economic surprise index nears a low (short):
From
the persistent optimist (medium):
Counterpoint
(medium):
Problems
in the Canadian banking system (medium):
http://www.zerohedge.com/news/2017-05-01/what-bank-run-looks-home-capital-loses-70-deposits-one-week
Greece
reaches deal with lenders (medium):
Politics
Domestic
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
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