Wednesday, July 26, 2017

The Morning Call--The bulls ruled the day

The Morning Call

7/26/17

The Market
         
    Technical

The indices (DJIA 21613, S&P 2477) had a great day.  Breadth improved but volume remains low.  The upward momentum as defined by their 100 and 200 day moving averages and uptrends across all timeframes remains intact.  At the moment, technically speaking, I see little except for the VIX, to inhibit the Averages’ challenge of the upper boundaries of their long term uptrends---now circa 24198/2763. 

The VIX (9.4) was up fractionally, but again finished in downtrends across all timeframes.  It is not surprising that it is at all-time lows at a time when stocks are at all-time highs; but it does suggest that further highs in stocks will be limited in magnitude---though clearly you couldn’t tell by yesterday’s pin action. 
               
The long Treasury fell 1 ½%, ending below the lower boundary of its very short term uptrend---potentially a sign that bond investors could be adjusting their economic/interest rate expectations.  It remained above its 100 and 200 day moving averages. 

Intraday, the dollar traded below the lower boundary of its short term trading range but finished back above it.  It remains in a very short term downtrend and below its 100 and 200 day moving averages.

 GLD moved lower, but still closed above its 100 day moving average for the third day, reverting to support. 

Bottom line: stocks rose on good news on all fronts; indeed, if they hadn’t moved up, I would have thought something amiss.  Bonds reflected the positive economic data.  The question is now whether there will be follow through to the downside.

    Fundamental

       Headlines

            The optimists owned the day.  The US economic news was virtually all positive: month to date retail chain store sales, July consumer confidence, the July Richmond Fed manufacturing index and the May Case Shiller home price index (although the Fed may not like the less than anticipated price rise).  Several major Dow components reported better than expected earnings. Oil bounced hard (but, but lower oil prices are an unmitigated positive). Overseas, German business confidence was quite strong.
            ***overnight, second quarter UK GDP was slightly ahead of forecast.

            On the fiscal side, the senate passed the measure that would allow the debate on healthcare to continue.  Later, it failed to pass a straight ‘repeal and replace’ motion; but that was expected.  That it took so long and so much effort to accomplish so little (an agreement to talk) illustrates so well just how ugly the legislative sausage making can be.  Bad; but it is better than the alternative.

            The house passed a bill imposing sanctions on Russia for interference in the 2016 elections.  Sanctimonious a**holes.  The US has interfered in more elections than Carter has liver pills.

            Today will bring the next iteration of the Fed’s Tower of Babel.  Gosh, knows how the post meeting statement will read; but it is sure to be just as confusing as every other communication out of this group of eggheads for the last three years.  And reason is, that the Fed (and the rest of the central banks) have painted themselves and the global economy into a corner.  The massive mispricing and misallocation of assets has stifled growth, will continue to do so and will only get worse the more they foist QEInfinity on the rest of us.
           
            It is even worse in Europe (medium):

            More signs of the mispricing of assets (short):

            The death cross of central bank credibility (short):

            Bottom line: lots of good news fueled yesterday’s spike.  Certainly this earnings season is coming in better than forecast.  It seems to be a tribute to American business acumen, because, this week’s numbers notwithstanding, there is nothing in the macroeconomic data to account for the progress.  Perhaps the improved regulatory environment and the recovering EU economy are starting to have an impact.  We can only hope---because we are going to need all the help we can get when the central banks get their comeuppance.

As lame as the legislative process appears at times, the senate vote does keep alive the move towards reform healthcare and with it, hopefully, taxes cuts and infrastructure spending.  To be sure, this vote was a baby step.  So I am not sounding the trumpets; but it does seem that the GOP is getting its act together and as I said, hopefully, our political class will do what is necessary to break the shackles its predecessors have placed on our economy.

       Investing for Survival
   
            Skill versus luck.
           
    News on Stocks in Our Portfolios
 
Becton, Dickinson (NYSE:BDX) declares $0.73/share quarterly dividend, in line with previous.

Canadian National Railway (NYSE:CNI): Q2 EPS of C$1.34 beats by C$0.02.
Revenue of C$3.33B (+17.3% Y/Y) beats by C$50M.

AT&T (NYSE:T): Q2 EPS of $0.79 beats by $0.05.
Revenue of $39.8B (-1.8% Y/Y) in-line.

General Dynamics (NYSE:GD): Q2 EPS of $2.45 beats by $0.02.
Revenue of $7.68B (-1.2% Y/Y) misses by $70M.

Boeing (NYSE:BA): Q2 EPS of $2.55 beats by $0.25.
Revenue of $22.74B (-8.2% Y/Y) misses by $280M.

Coca-Cola (NYSE:KO): Q2 EPS of $0.59 beats by $0.01.
Revenue of $9.7B (-15.9% Y/Y) beats by $50M.


Economics

   This Week’s Data

            The May Case Shiller home price index rose 0.1% versus consensus of up 0.3%.

            Month to date retail chain store sales grew slightly faster than in the prior week.

            July consumer confidence soared to 121.1 versus expectations of 117.0.

            The July Richmond Fed manufacturing index was reported at 14 versus estimates of 8.

                        Weekly mortgage applications were up 0.4%, while purchase applications fell 2.0%.

   Other

            Update on the Chinese economy from Stephen Roach (medium):

Politics

  Domestic

  International War Against Radical Islam


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