The Morning Call
7/21/17
The
Market
Technical
The indices
(DJIA 21611, S&P 2473) drifted lower on day filled with good news. Volume was up, but remained at a low level;
and breadth continued weak. The Averages
remain firmly in uptrends 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 24198/2763.
The VIX (9.6) was
down 2%, finishing below the lower boundary of its long term trading range for
the fifth day, resetting it to a downtrend.
It is now in downtrends across all timeframes.
The long
Treasury was up on volume, ending well above its 100 and 200 day moving averages
as well as the lower boundary of its very short term uptrend.
The dollar was
hammered, pushing it to within a short hair of the lower boundary of its short
term trading range. UUP is also below
its 100 and 200 day moving averages, within a very short term downtrend and its
chart is getting uglier by the day.
GLD was up slightly,
closing above its 200 day moving average (if it remains there through the close
today, it will revert to support) and is nearing its 100 day moving average. So clearly, this chart is improving.
Bottom line: on
Wednesday stocks were up on disappointing news (which has been par for the
course for the last year and half), but yesterday were down (though admittedly
not by much) on very good news. I am
not suggesting that there has been a sudden change in investor psychology. More likely, all that good news simply was
already in the price of stocks. Nonetheless,
the juxtaposition of the two trading days is somewhat curious.
Meanwhile, TLT,
UUP and GLD reacted as you would have expected on a day where two major central
banks chirped dovishly.
Fundamental
Headlines
Yesterday’s
news flow was upbeat. The US economic
numbers were positive: weekly jobless claims fell more than expected, the June
leading economic indicators were better than forecast. On the other hand, the July Philly Fed index
was disappointing. Overseas, the stats
were mixed: the June Japanese trade balance shrunk while June UK retail sales
beat estimates.
***overnight,
the IMF finally agreed ‘in principle’ to join in the latest Greek bailout.
However,
the big news of the day was the BOJ and ECB meetings; and both left policies
unchanged but provided more dovish narratives than had been anticipated. Given the Fed’s recent dovish back peddling
on its own policy initiatives, we have easy money unanimity. I am not going to torture you with my usual asset
mispricing and misallocation rant, but………..
Draghi’s
confusion
Bill
Gross on Fed policy (medium):
Bottom line: if
liquidity is driving this market, then look out above. Three major central banks have made dovish
statements in the last two weeks. Yes,
the Fed said that it would began unwinding its balance sheet later this year;
but virtually every statement regarding a ‘normalization’ of monetary policy
that it has made over the last two years has turned out to be more hawkish than
its ultimate action. Indeed, it has
never in its history acted as hawkishly as its rhetoric anticipating monetary
tightening.
The Market
question is, how long will investors buy the current central bank narrative
before it once again realizes these guys have wrecked price discovery as a
resource allocation mechanism and that they have never, don’t and likely never will
manage a smooth transition from easy to normal monetary policy. Sooner or later, the price is going to be
paid for the gross mispricing and misallocation of assets. I just don’t know when. I do know that I want to own cash when it
happens.
The
easy money is being made. Enjoy it while
it lasts. (short):
My
thought for the day: No one buys a stock expecting to lose money. But it happens; and unfortunately many
investors end up ignoring stop losses or, even worse, throwing good money after
bad as part of a post trade rationalization process. Good investors know how to make money; great
investors know how to take a loss.
Investing for Survival
Ten
rules for catching a bottom.
News on Stocks in Our Portfolios
Revenue of $4.1B (+5.1% Y/Y) beats by $60M.
Revenue of $24.7B (+9.1% Y/Y) beats by $430M.
Revenue of $7.46B (+4.2% Y/Y) beats by $220M.
Economics
This Week’s Data
The
June leading economic indicators rose 0.6% versus forecasts of up 0.4%.
Other
CBO
projections are worse than useless (medium and today’s must read):
David
Stockman on the upcoming debt ceiling vote.
I usually like his analysis but I think this dire prediction a bit over
the top. Nonetheless, I include as a worst
case scenario as our political class moves toward D day.
Quote
of the day (short):
Government
pension funds aren’t the only ones that are underfunded (short):
Politics
Domestic
Another ill
effect of power (short):
Mueller expands
probe into Trump business activities (medium):
International
The US apparent diplomatic strategy
towards North Korea and China (medium):
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