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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for Survival’s website (http://investingforsurvival.com/home)
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