Wednesday, May 31, 2017

The Morning Call--An interesting summer

The Morning Call

5/31/17

The Market
         
    Technical

The indices (DJIA 21029, S&P 2412) drifted lower yesterday, but finished 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.  However, while the S&P remains above its recent high (2402) the Dow has not (21228) yet challenged its high.   In order for me to assume that the next targets for the Averages are now the upper boundaries of their long term uptrends, the Dow has to get through the 21228 level.   Volume rose; while breadth weakened.

The VIX (10.4) was up 5 ½%.  It still ended below its 100 and 200 day moving averages, now resistance.  However, it closed above the lower boundaries of both its intermediate term and long term trading ranges, thereby negating the recent breaks.
               
The long Treasury was up, continuing to suggest investors are looking for a weaker economy/lower rates.  It closed between narrowing distances its 100 and 200 day moving averages and the upper boundary of its short term downtrend and the lower boundary of its long term uptrend. 

The dollar was down again also reflecting doubts that the economic is improving/rates are rising.  It ended below its 100 and 200 day moving averages, within a very short term downtrend and a short term trading range. 

GLD was off slightly but closed above its 100 and 200 day moving averages, within a short term trading range but is building a very short term uptrend.

Bottom line:  the technical issue now is, will the Dow successfully challenge its former high or will the S&P fall back, making this latest move up a false flag?  At the moment, I have to assume that the answer is the former.  But even if it is not, there is currently little danger of a trend reversal.
           
    Fundamental

       Headlines

            Yesterday’s economic data flow was a mixed bag: the May Dallas Fed manufacturing index was ahead of estimates while May consumer confidence was below; March housing prices were up more than expected and April consumer income and spending were both in line.

Real indicators that matter (medium):

            ***overnight, April EU inflation was lightly less than anticipated, the May Chinese manufacturing PMI was flat while the nonmanufacturing PMI was better than expected; and the BOJ said it would keep its QEInfinity purchases in place for June.

            Trump is back from the global tour.  The chattering class spent its day doing yet another analysis of its success or lack thereof and looking forward the passage or lack thereof the Trump/GOP agenda in this summer’s legislative session.   

            On the former, here is Merkel on Trump’s NATO policy (medium):

                Also a pro-NATO take on Trump’s visit (medium):

            The latter, Carmen Reinhart (of Reinhart and Rogoff) on Trump’s budget (medium):

            Bottom line: this should a summer to remember with the dems hyperventilating over the Trump/Russia connection, the GOP congress trying to move on its reform agenda and the Fed driving to the ‘tightening’ hoop.  All of these could produce either good or bad headlines.  However, with the economy weakening and stocks in nosebleed valuations, investors have to keep interpreting good news as good news and bad news as good news to maintain the upward momentum in equities.  So far, they have.  But one day bad news is going to be bad news.

            My thought for the day:  Patience is hard.  Most investors want immediate gratification when they make an investment.   However, real investments can take years to produce their results.  More importantly, they are not always going to be winners.   However, the best chance of achieving success is by having investment discipline.  I, for example, don’t feel comfortable with the valuation process for non-dividend paying stocks; so I don’t invest in them.  There are periods when that discipline causes my Portfolio to underperform.  Eventually though it works for me because over a full Market cycle, my Portfolio has kept up with or outperformed the Market but with less volatility.

       Investing for Survival

         Investment/general biases

Availability: individuals form the best story they can based off information they have and deem unknown information as unnecessary. Example:  if I say a national leader is intelligent and firm, you’d probably think she’s a good, not a bad leader. But what if the third word I was going to use was corrupt? Individuals tend to form judgements based on the information they have and fail to wait for information they don’t have, or how I described it: “what you see is all there is.”

    News on Stocks in Our Portfolios
 
Economics

   This Week’s Data

            The March Case Shiller home price index was up 0.9% versus expectations of up 0.8%.

            May consumer confidence was reported at 117.9 versus estimates of 119.0.

            The May Dallas Fed manufacturing index came in at 17.2 versus consensus of 15.4.

            Month to date retail chain store sales grew less rapidly than in the prior week.

   Other
           
            On Moody’s recent downgrade of China’s credit (medium):

            Durable goods deflation (short):

            EC considering securitizing the sovereign debt of its member countries (medium):

            The rising level of global debt (medium):

            More on auto loans (medium):

            Update on big four economic indicators (medium):

Politics

  Domestic

CNN (of all places) blasts US universities intolerance (medium):


  International


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