The Morning Call
8/31/17
The
Market
Technical
The indices
(DJIA 21892, S&P 2457) had a good day on improved breadth, though volume continues
low. The S&P remains in focus;
yesterday, it closed (1) above the lower boundary of its short term uptrend,
(2) above the upper boundary of a developing short term downtrend as well as
pushing out of the pennant formation to the upside and (3) also in the process
broke the potential formation of a head and shoulders pattern. We need some follow through today; but it
appears that the S&P has completed its recent consolidation process and is
heading higher.
The VIX (11.2) fell
4 %, leaving it below the upper boundary of its short term downtrend, back
below its 100 day moving average (if it remains there through the close on
Friday, it will revert to resistance), below its 200 day moving average (if it
remains there through the close next Monday, it will revert to resistance) but finished
above the lower boundary of a developing very short term uptrend. I am left questioning whether or not the VIX
has bottomed.
The long
Treasury declined fractionally, ending above its 100 and 200 day moving
averages (both support), the lower boundaries of its short term trading range
and its long term uptrend and has now made a third short term higher high. That is a lot of support.
And:
The dollar rose,
but still finished in a short term downtrend and below its 100 and 200 day
moving averages. However, it closed back
above the lower boundary of its short term trading range, negating Monday’s
break.
GLD fell, but ended above the lower boundary
of its very short term uptrend, above its 100 and 200 day moving averages (both
support) and above the upper boundary of its short term trading range for a third
day, resetting to an uptrend.
Bottom line: while
we need another day or so of follow through, it appears the S&P’s struggle
to hold its short term uptrend is over. However,
the continued positive pin action in TLT along with the upside breakout of GLD are
somewhat inconsistent with the renewed strength in the S&P. I would like a little more clarity before I am
comfortable with the overall technical picture.
Fundamental
Headlines
Yesterday’s
economic data were mixed: weekly mortgage and purchase applications fell, the
August ADP private payroll report showed job increases above estimates and
revised second quarter GDP was above consensus while corporate profits were less
than originally reported.
A
closer look at the GDP number (medium):
Overseas,
EU economic confidence rose to its highest level in a decade.
***overnight,
the August Chinese manufacturing PMI came in ahead of expectations while the
services PMI was below; August EU inflation was slightly above projections;
August German unemployment declined.
The
major news item of the day was (aside from going a second day without insulting
somebody critical accomplishing his agenda or sticking his foot in his mouth) the
kick off of a series of Trump speeches on tax reform. In it he laid out four objectives: simplify
the tax code, lower corporate tax rates, lower middle class tax rates and
repatriate the foreign profits of US firms.
Worthy objectives; but few details.
The three big questions are (1) what will it cost, i.e. is it revenue
neutral, (2) can the Donald restrain his penchant for insulting everything that
moves on capitol hill long enough to effectively work with congress to
accomplish this objective and (3) even if he does, can the GOP come together to
get it done. Stay tuned.
The
US ups the ante against North Korea (medium):
Bottom line: I
continue to believe that the most important factor to further improving in the
long term secular growth rate of the economy is the implementation (or lack
thereof) of the Trump/GOP fiscal program.
Having failed at healthcare, the next big item is tax reform; and yesterday,
we got our first look at the Donald’s version of that. The good news is that his goals sounded
great; the bad news is that there wasn’t a hint of how much they would
cost. Until we know that, this is just
an exercise in dreamweaving.
I also continue
to believe that the economy has little to do with the ultimate fate of stock
prices. The key is that stocks, specifically,
and assets, in general, have been through an extended period of mispricing and
misallocation caused by misguided central bank monetary policies and which will
likely be corrected sooner or later. As a result, I think cash is an important part
of any portfolio’s composition.
This
is a nice lesson from Warren Buffett in not panicking in a market rout. What the author leaves out is that in both
the market downturns that he describes, Buffett had plenty of cash to take
advantage of the decline in prices. That
is a huge part of the math of achieving the returns mentioned. Buffett had cash because he accumulated (and
didn’t spend) it when stocks were at higher valuations---which happens to be a
contradiction of the author who in prior articles argues for buy and hold.
My
thought for the day: most investors treat the recommendations of highly
regarded Wall Street analysts as having great insight and worthy of being
followed. In fact, several studies have
shown that for the most part, analyst’s prediction are so far off the mark as
to be virtually useless. Buyer beware.
Investing for Survival
Managing
the sequence of returns.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Weekly
jobless claims rose 1,000 versus forecasts of up 3,000.
July
personal income was up 0.4%, in line; personal spending advanced 0.3% versus
estimates of up 0.4%.
August
retail chain store sales were ahead of their July number.
Other
Politics
Domestic
Staff reductions
in the State Department (medium):
International War Against Radical
Islam
Iran rejects inspections of its
nuclear sites (short):
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