The Morning Call
7/28/17
The
Market
Technical
The indices
(DJIA 21796, S&P 2475) had another mixed day (Dow up, S&P flat). Volume rose; breadth improved. 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 (10.1) was
up 6 ¾ %, unusual for the day’s pin action.
It finished above the former lower boundaries of both the intermediate
and long term trading ranges. To be
sure, enough time has lapsed to confirm the break of both trends to the
downside. That said, given we are talking
about the VIX hitting an all-time low, there is the question of whether the
last week’s decline was some kind of blow off bottom. Follow through.
The long
Treasury declined, ending back below the lower boundary of its very short term
uptrend. But it remained above its 100
and 200 day moving averages. The gap
between the uptrend and the moving average is very small; so TLT is in a sort
of no man’s land. Any follow through in either
direction (i.e. above the lower boundary of its very short term uptrend or
below the moving averages) will likely determine its next big move.
The dollar finished
back above the lower boundary of its short term trading range, negating
Wednesday’s break; but that did little to improve an otherwise ugly chart.
GLD fell slightly, ending above its 100 and
200 day moving averages.
Bottom line: yesterday’s
overall pin action was pretty confusing: Dow up, S&P flat; the VIX up big
on a rise in the Dow; and a third day of uncertain vacillation by the TLT, UUP
and GLD. I don’t pretend to know what
that means, if anything. But we do know
that the Averages remain firmly in uptrends.
Fundamental
Headlines
The
pin action wasn’t the only thing that was a bit confusing yesterday. The economic data was also not what it
appeared on the surface. The June
durable goods headline number was strong, but that was due to a huge increase
in the erratic transportation orders, leaving core orders down. The June trade deficit shrunk, but the May
deficit was revised up by an equal amount.
The June Chicago national activity index was up more than expected, but
the May number was revised down. I
scored all these a neutral; but that durable goods stat is a negative.
***overnight,
Spain and France reported second quarter GDP in line with estimates, while
Germany was above expectations; second quarter Japanese CPI was in line.
On
fiscal policy, GOP leadership killed the border adjustment tax. It was never very popular anyway; but it did
provide revenue for a corporate tax cut.
The question is, will this result in a scale back in the corporate tax cut
or a revenue negative tax cut? I believe
that the answer is important because this country can’t afford to expand either
its deficit or its debt.
***overnight, the senate
GOP failed to pass the ‘skinny repeal’ healthcare reform bill.
It
is hard for me to go a day without ragging on the Fed, especially after a major
event. I will let Lacy Hunt do it for me
as he addresses the effectiveness (or lack thereof) of the Fed’s dual mandate
(medium):
Bottom line: the
two notable events of the day for me were (1) the schizophrenic performance of
all of the Markets. As I said above, I don’t
know that it means anything; but I don’t know that it doesn’t and (2) the
demise of the border adjustment tax. I
believe that is a plus as regards our trade policy. But I fear it could be a negative if
Trump/GOP proceed with their promised tax cuts without finding alternative sources
of revenue to pay for them. To do so
would just continue the irresponsible fiscal policies of the Bush and Obama
reigns. Adding to the deficit/debt would
simply place a heavier burden (debt service) on the economy, further stifling
growth.
For those who
haven’t yet, I would sell a portion of my winners and all my losers in order to
build a cash position. Sell high, buy
low.
Investing for Survival
Are
ETF’s and index funds more dangerous in a bear market?
News on Stocks in Our Portfolios
Revenue of $979.7M (+5.2% Y/Y) beats by $3.23M.
Revenue of $62.9B (+9.0% Y/Y) beats by $980M.
Economics
This Week’s Data
The
July Kansas City Fed manufacturing index was reported at 10 versus its June
reading of 11.
Second
quarter GDP was up 2.6%, in line; but the first quarter number was revised from
up 1.4% to up 1.2%.
Other
Quote
of the day (short):
Politics
Domestic
International War Against Radical
Islam
The
balance of power in Saudi Arabia (medium):
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