The Morning Call
9/28/17
The
Market
Technical
The indices
(DJIA 22340, S&P 2507) had a good day.
Volume was up; breadth strengthened.
Both remain above their 100 and 200 day moving averages and are in
uptrends across all time frames.
The VIX (9.9) fell
3 ½ %. It ended below the upper boundary
of its short term downtrend, below its 100 and 200 day moving averages and
below the lower boundary of its long term trading range. The question remains, did the VIX bottom in
July?
The long
Treasury declined 1 ½ % on volume, but still finished above its 100 day moving
average (both support) and the lower boundaries of its short term trading range
and its long term uptrend. But it ended
below its 200 day moving average (now support); if it remains there through the
close next Monday, it will revert to resistance
The dollar was
up strong, but remained in its short term downtrend and below its 100 and 200
day moving averages. However, it
finished below the lower boundary of its very short term downtrend and has
broken the series of lower highs.
GLD was down another
1%, but ended above its 100 and 200 day moving averages (both support) and the
lower boundary of a short term uptrend. However,
it has now made a second lower high.
Bottom line: long term, the indices remain
strong viz a viz their moving averages and uptrends across all timeframes. Short
term, they are above the resistance level marked by their August highs, meaning
that there is no resistance between current price levels and the upper boundaries
of the Averages long term uptrends.
On the other
hand, all those gap openings from two Monday’s ago still need to be
closed.
Finally, all the
indices reacted to the prospects of the passage of tax reform and the assumed
result of a stronger economy.
I remain
uncomfortable with the overall technical picture.
Fundamental
Headlines
Yesterday’s
economic stats were tilted negative: weekly mortgage and purchase applications
were down, August pending home sales were down and August durable goods orders
rose, but ex transportation they declined.
The
big new item of the day was the release of the new Trump/GOP tax reform plan. Given the extent of the coverage plus the information
in the links below, I am not going to go into the details. From an analysis point of view, (1) it will
make the tax code simpler and, in my opinion, fairer, (2) as yet, we have no
idea of the odds of passage and (3) nothing was said about its costs nor has it
been scored by the CBO, though most analysts are predicting a $1.5 to $5
trillion short fall over the next ten years.
Here is both a summary as well as the entire document released yesterday
morning.
Here
is Goldman’s analysis (medium):
This
is a must read analysis from Lance Roberts (medium):
Bottom line: Tuesday
we got confirmation that Janet wants to shift monetary policy from
accommodation to unwinding QE. That
means we will now get a test of my thesis that ending QE will have little
effect on the economy but a significant impact on the market. Yesterday, we got the blueprint for tax
reform, the second fiscal pillar of the Trump/GOP platform---supposedly one
that will be much easier to pass. Assuming it passes and that it is not revenue
neutral, we will get a test of whether an already over indebted economy can
grow following a stimulative tax break that further increases that economy’s
debt.
You know my
opinion on both issues. Whatever occurs,
we are entering interesting times with respect to economic theory.
My
thought for the day: this seems obvious, but don’t start planning for a bear
market after it occurs. If you prepare
yourself psychologically for any investment environment ahead of time, it
decreases the chances of blowing up your portfolio by making unforced errors at
the wrong time.
Investing for Survival
The
big lie of market indicies.
News on Stocks in Our Portfolios
Revenue of $9.15B (+7.8% Y/Y) beats by $120M.
Economics
This Week’s Data
August
pending home sales fell 2.6% versus expectations of a down 0.2%.
Revised second quarter
GDP was reported up 3.1%, in line.
While revised second
quarter corporate profits rose 7.4% versus the prior reading of up 8.1%.
The August trade deficit
was $62.9 billion versus estimates of $65.7 billion.
Weekly
jobless claims rose 12,000 versus forecasts of 16,000.
Other
Politics
Domestic
More problems
for public pension funds (medium):
Still more
problems (medium):
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.
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