The Morning Call
6/15/17
The
Market
Technical
The indices
(DJIA 21374, S&P 2437) had a mixed day (Dow up; S&P down). Neither move was that dramatic considering it
was a day of worse than expected data and a more hawkish Fed. Nevertheless, both are in solid uptrends as
defined by their 100 and 200 day moving averages and uptrends across all
timeframes. At the moment, I see
nothing, technically speaking to inhibit the Averages challenge of the upper
boundaries of their long term uptrends---now circa 24198/2753. Volume declined and breadth improved.
The VIX (10.6)
was up 1 ¾ %, remaining below its 100 and 200 day moving averages and above the
lower boundaries of its intermediate and long term trading ranges.
The long
Treasury spiked 1 ½ % on big volume, finishing above its 200 day moving average
(if it remains there through the close on Tuesday, it will revert to support)
and the upper boundary of its short term downtrend (if it remains there through
the close on Monday, it will reset to a trading range; if it successfully
challenges that boundary, it will also break out of the developing pennant
formation---a positive, technically speaking).
The dollar was
down on volume, ending in a very short term downtrend and below its 100 and 200
day moving averages---increasing the ugliness of its chart.
GLD fell 0.5% on
big volume, ending above its 100 and 200 day moving averages while the 100 day
moving average crossed above its 200 day moving average (usually a positive
technical signal).
Oil got whacked
again.
Bottom line: despite
the new harmony of the Averages, the rest of the Market continued to trade out
of sync with stocks. Equity investors
took yesterday’s news in stride with the indices closing mixed on low volume. However, volume exploded in TLT, UUP and
GLD. Plus the pin action in TLT and UUP
pointed definitively at a weaker economy/lower rates. On the other hand, GLD trading suggested
higher rates. I am frankly unsure how to
interpret all of this as it relates to fundamentals. It could just be a lot of noise; or maybe
investors just need more time to clarify their thoughts.
Doug
Kass on the impact of algos and AI on the market (medium and a must read):
Fundamental
Headlines
As
expected, yesterday was a busy day news wise.
The data releases were negative: weekly mortgage applications were up
but well below the level of the prior week, weekly purchase applications were
down; both the May headline and ex food and energy CPI’s were below projections
(while I would ordinarily rate a decline in CPI as a plus, it is probably not a
good sign when recession is a risk); both the May headline and ex autos retail
sales were below estimates.
Janet, you have
a problem (short):
A
second event was the conclusion of the June FOMC meeting, its subsequent
statement and the Yellen press conference.
The bottom line is that it raised the Fed Funds rate by another 0.25%,
it expects to increase that rate four more times in the next two and a half
years and to begin unwinding its balance sheet this year and, in general,
carried a more hawkish tone than anticipated.
In short, it once again ignored the data as well as its own staff’s
economic analysis and forecast a more positive outlook in order to justify the
normalization of monetary policy.
The
problem with the Fed’s stated strategy (not reinvesting proceeds from short
term maturities) of shrinking its balance sheet (medium and a must read):
Not
to be repetitious, I want to be clear on my thesis: (1) the economy is
struggling and while it might avoid recession, it is nowhere near as robust as
the Fed alleges, (2) ending QE will have little negative impact [i.e. it won’t
make economic conditions any worse than it would be anyway] on the economy
since its implementation did little; so I applaud the ongoing normalization, (3)
however, given QE’s enormous positive effect on asset pricing and allocation, I
believe that normalization will reverse that.
I
have linked to a redacted version of the FOMC statement, the members’ forecasts
and Goldman’s analysis.
The
FOMC statement:
And
the ‘dot plot’:
Goldman’s
take (medium):
China
is also tightening monetary policy (medium and a must read):
Finally, with
the dems Russia collusion case teetering on the brink of extinction, they have
adopted a new strategy, bringing suit against Trump alleging his violation of
the emoluments clause of the Constitution. This article was posted on my
favorite liberal’s website (medium):
Add
to that the new obstruction of justice investigation by the special prosecutor
(medium):
Bottom
line: while yesterday was a busy one, nothing occurred that changed anything in
my forecast: the numbers continued weak, the Fed continues to do everything it
can to try get out of its self-made disaster (QE), praying that its actions
won’t disturb the mispricing and misallocation of assets it created, and its
prayers will continue to be answered as long as all news is good news---‘as
long as’ being the operative words.
My
thought for the day: yesterday I opined that good investors have a high regard
for uncertainty---i.e. that anything can happen. As a result, they integrate a Stop Loss
function into their strategy. Part and
parcel of that part of their analysis is to focus more on the risk in an
investment than they do on the reward. One
of the reasons that the average investor avoids risk assessment is because they
want to believe that they know what is going to happen next. And if they
recognize that they don’t know what is going to happen next, it would raise
self doubt and potentially freeze the decision making process. The consequence is that there is no
discipline in defining risk/reward and hence, no real sense of an attractive
Buy Price or a logical Price to take profits.
Investing for Survival
How
to prepare for the end game.
News on Stocks in Our Portfolios
Economics
This Week’s Data
April
business inventories declined 0.2% versus expectations of down 0.1%.
Weekly
jobless claims fell 8,000 versus estimates of a 2,000 decline.
The
June Philadelphia Fed manufacturing index was reported at 27.6 versus consensus
of 26.0.
The
June New York Fed manufacturing index came in at 19.8 versus projections of 5.0.
May
import prices fell 0.3% versus forecasts of -0.1%; export prices declined 0.7%
versus expectations of +0.1%.
Other
Update
on the commercial real estate market (short):
More
on student loans (medium):
Politics
Domestic
Thoughts on the
current political atmosphere (medium):
International War Against Radical
Islam
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