The Morning Call
5/19/17
The
Market
Technical
The indices
(DJIA 20663, S&P 2365) managed to stabilize yesterday, leaving them above
their 100 and 200 day moving averages and the lower boundaries of uptrends
across all major time frames---in other words, in solid uptrends. In addition, they remained below those big
opening gaps down. So there is currently
no reason to even consider a potential technical breakdown. Volume was flat with Wednesday’s high volume;
breadth was little improved despite the up day.
The VIX (14.6) challenged
the upper boundary of its short term downtrend intraday, failed and finished
down 6%. It remained well above its 100 day
moving average for a second day (if it remains there through the close today,
it will reset to support), its 200 day moving average (if it remains there
through the close next Monday, it will revert to support) and Wednesday’s huge
gap opening.
Trading in the dollar
(up) and gold (down) followed the Averages lead, reversing Wednesday’s pin
action. However, the dollar was not up
enough to prevent its short term uptrend from resetting to a trading
range---suggesting a weak economy/lower interest rates and/or loss of faith in
the US as a safe haven. TLT was up as it
was on Wednesday, also suggesting a weak economy/lower interest rates but not a
loss of faith in the US as a safe haven
Bottom line: so no follow through to the downside, though
it remains to be seen if yesterday’s price performance was a dead cat bounce or
investors deciding that the events in Washington are no big deal. It is going to take a bit more time to
determine which it is. In the meantime,
we have to assume that there is little danger of a trend reversal.
Fundamental
Headlines
Yesterday’s
economic stats were positive: weekly jobless claims were down, the May
Philadelphia Fed manufacturing index was a blowout number while April’s leading
economic indicators came in on target.
Since there are no data releases today, these numbers are the deciding
factors for this week’s positive score.
Overseas,
the stats were also upbeat: first quarter Japanese GDP was better than forecast
and April UK retail sales were up more than anticipated.
Most
of yesterday’s investor focus was on (1) the Market, why it fell on Wednesday
and what, if anything that means going forward and (2) the Trump dilemma, [a] with
most agreeing that the appointment of the special prosecutor should lower the
heat, at least short term and [b] the release of a tape of earlier Comey
testimony in which he said there has been no obstruction to any investigations.
Bottom line:
yesterday I opined: ‘Of course, that
doesn’t mean that Trump has seen the last attack on his actions. Usually, just when you think things can’t get
any worse, they do. Whatever happens,
the most important take away remains how much will these issues delay or
destroy the Trump/GOP fiscal agenda.
Almost certainly, it will likely push any passage of repeal and replace
and tax reform into 2018; and depending on how these accusations are resolved
(i.e. whether or not Trump is found guilty/complicit), they may never get
enacted. With that pleasant thought, the
pressure is clearly off to make any adjustments to our long term secular
economic growth rate assumptions based on the impact of the Trump/GOP fiscal
plan.’
As
far as equities go, assuming that I am right about the potential delay in reform
legislation, the two questions are (1) how much will Street economic and
earnings assumptions be marked down and perhaps more importantly (2) will
investors even care. After all, they have chosen to ignore
historical valuation measures for the last couple of years. And as long as the prevailing optimism
remains unaffected, any lowering in earnings expectations is not likely to
change anything.
This
is a must read summation of the likely implementation of Trump’s promised
fiscal policy. Surprisingly, it is from
my favorite liberal. (medium and a must
read):
More
on valuations (medium):
The latest from Doug Kass
(medium):
A
bullish counterpoint to the above opinion (medium and a must read):
My thought for the day: You've got to know when to hold
'em. Know when to fold 'em. Know when to walk away. Thus sayeth Kenny Rogers.
In other
words, you need some measure of risk
management in your portfolio to achieve long term success. Most
people do the opposite of what they should due to emotional biases - the sell
when they should buy, the hold onto losing positions hoping they will come
back, they double down on losing positions, they sell winning positions too
soon and many more mistakes that are almost all entirely driven by emotion
rather than logic. Emotional players always lose in gambling and
investing.
A good investor must develop a risk management
philosophy (a Sell Discipline).
The odds of success can be substantially increased by removing the emotional
biases that drive most investment decisions. Being well disciplined
within an investment strategy allows you to act and react successful to a fluid
and changing investment landscape. Sell signals, trend changes,
pre-determined exit strategies, etc. will give you the chance to fold before
losses mount.
Investing for Survival
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aggressive investing.
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
April leading economic indicators rose 0.3%, in line.
Other
Barry
Ritholtz on the latest consumer credit numbers (medium):
The
latest example of Chinese ‘make believe’ accounting (medium):
Politics
Domestic
International War Against Radical
Islam
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