The Morning Call
5/3/17
The
Market
Technical
The indices
(DJIA 20944, S&P 2391) lifted modestly yesterday. Volume rose; breadth improved. Both
remain above both their 100 and 200 day moving averages and the lower
boundaries of uptrends across all major time frames---all of which acts as
support. That clearly means that
momentum remains to the upside. So it is
resistance that becomes important. Immediate
resistance now exists at their former highs (21228/2402) and ultimately at the
upper boundaries of their long term uptrends (23390/2591).
After trading
below 10.0 intraday, the VIX (10.5) managed a 4 ¼ %, increase (a little unusual
on an up day). While it has been trashed
of late, selling below its 100 and 200 day moving averages, yesterday it
bounced off of the lower boundaries of its short and intermediate term trading
ranges---perhaps indicating that it has found support.
As ebullient as
equities’ pin action has been, the investors in the long Treasury (in a no man’s
land now, technically speaking), gold (holding price very well), the dollar
(weakening) and oil (getting pounded) appear to have doubts about the growing
economy, rising interest rates and rising inflation scenario. That doesn’t mean
that they are right; but it does give reason to question.
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?
Gap
openings (medium):
Update
on margin debt (medium):
Fundamental
Headlines
The
stats were mixed yesterday: month to date retail chain store sales growth
improved over the prior week while April light vehicle sales were disappointing
(by far the more important of the two).
Overseas,
the April EU Markit manufacturing PMI rose to a six year high. There was additional news on:
(1) the Canadian
financial difficulties,
(2) the Saudi’s
problems with the current oil production cut agreement,
(3) Chinese
displeasure with US deployment of a missile defense system in South Korea.
***overnight,
April UK construction PMI was better than expected, while April German
unemployment fell.
Bottom
line: I wish I could say that those were the only headlines of the day, but not
so. Much of the day was consumed with
the political class arguing over who is getting the better deal in the spending/debt
limit legislation; in other words, business as usual. Generally with our political class, there is a
direct correlation between the volume of the rhetoric and the truth (i.e. me
thinks the lady doeth protest too much). By that measure, it would appear that the prize
goes to the dems. Unfortunately, all the
whining by the GOP diverts time and energy from getting the real work done:
repeal and replace and tax reform. The
voters were promised a new agenda; and, notwithstanding investors relief that
the government avoided a shutdown (was that not a plus for the republicans?), Trump
(the negotiator)/GOP needs to be focused on pursuing that agenda, not wasting
time in sixth grade level arguments over who has the biggest Johnson.
Still as I noted
yesterday, this earning season has to date come in ahead of expectations. Below, I have linked to a great article theorizing
that a secular shift has occurred in the level of profit margins. While I think there may be some validity to
it, I don’t believe, that even if it 100% correct, it means that current equity
valuations are justified.
Finally, in
honor of the FOMC meeting concluding today, I will bore you by repeating: 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.
This
summarizes a very interesting thesis proposed by Jeremy Grantham; that is, that
corporate profit margins are less mean reverting than in the past for a variety
of reasons---which lead to higher margins on a secular basis along with less
volatility. And that, in turn, leads to a
change in the level of equity valuations.
It is an absolute must read article.
Whether you agree or not, it is serious food for thought.
Update
on corporate earnings (short):
Update
on valuations (medium):
And:
My thought for the day: there are investors who are so bad at the task
that they lack the capacity to realize how bad they are. In a study, researchers from the University of
Mannheim showed that investors who earn the lowest returns are the worst at
judging their own results. They had literally no idea how bad they were.
"The correlation between self-ratings and actual performance is not
distinguishable from zero" they wrote.
Investing for Survival
A
catalog of investing errors.
News on Stocks in Our Portfolios
PepsiCo (NYSE:PEP) declares $0.805/share quarterly dividend, 7% increase from prior dividend of $0.752.
Revenue of $52.9B (+4.6% Y/Y) misses
by $190M.
Revenue of $3.41B (+4.9% Y/Y) misses
by $10M.
Economics
This Week’s Data
Month
to date retail chain store sales grew faster than in the previous week.
April
light vehicle sales were below expectations.
Weekly mortgage
applications fell 0.1% while purchase applications rose 4.0%.
The
April ADP private payroll report showed job increases of 177,000 versus
forecasts of 170,000.
Other
The
decline in global poverty (short):
Politics
Domestic
International
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
No comments:
Post a Comment