The Morning Call
9/26/17
The
Market
Technical
The indices
(DJIA 22296, S&P 2496) closed down yesterday. Volume inched higher; breadth weakened
further. Both remain above their 100 and
200 day moving averages and are in uptrends across all time frames.
The VIX (10.2) was
up 7%. It ended below the upper boundary
of its short term downtrend, below its 100 and 200 day moving averages but
finished right on the lower boundary of its long term trading range. The question is, does the bounce signal that
the July low was the bottom?
The long
Treasury rose on volume, finishing above its 100 and 200 day moving averages
(both support) and the lower boundaries of its short term trading range and its
long term uptrend. It is now up three days
in a row following the hawkish conclusion of the FOMC meeting. Some observers are suggesting that TLT is
strong not because of a weakening economy but as a safety trade given the
current North Korea/Trump threat fest. Could
be. It is something to watch.
The dollar was
up, but remained in short term and very short term downtrends and below its 100
and 200 day moving averages and in a series of seven lower highs. If TLT as a safety trade is a correct thesis,
that UUP would also be showing strength.
GLD was up 1% on
volume, ending above its 100 and 200 day moving averages (both support) and the
lower boundary of a short term uptrend. Again the issue of a safety trade would also apply
here.
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, TLT and
UUP investors are not supporting the stock boy’s or the Fed’s scenario of an improving
economy/higher rates; though they could be reflective of the safety trade
thesis. On the other hand, if so, it
seems like equity prices should be weaker.
I remain
uncomfortable with the overall technical picture.
Fundamental
Headlines
Yesterday’s
US economic data was mixed: the August Chicago Fed national activity index was disappointing
while the September Dallas Fed manufacturing index quite positive.
Overseas,
the September Japanese Markit flash manufacturing PMI was strong while the
September German business confidence index was below forecasts. In addition, Japanese PM Abe is apparently
about to order a 2 trillion yen stimulus package.
Other
items
(1)
the GOP didn’t release its tax plan. That apparently happens on Wednesday via a
Trump speech. However, major provisions
were leaked---the details of which I linked to in yesterday’s Morning Call. Bottom line: it doesn’t appear to be revenue
neutral,
(2)
the GOP is still trying to salvage its latest
healthcare reform bill. Skepticism
prevails,
***overnight, Susan Collins deep six’s it.
(3)
the Donald suddenly went off message again; this time
taking on the NFL. Whatever, the
validity [or lack thereof] of his rant, in my opinion, he has much larger fish
to fry than worrying about football players kneeling during the national anthem
and conditions under which penalty flags should be thrown. Every minute he spends dicking around with
these issues is a minute not spent on healthcare reform, tax reform and keeping
the public safe.
Bottom line: the
economy is not as healthy as the ruling class and media would have you
believe. In my opinion, that doesn’t get
reversed by saddling the country (taxpayers) with more debt, however good the
intentions. It also doesn’t help when
the president spends his time ragging on the NFL rather than focusing on
healthcare, tax reform and working on diplomacy to cool a number of hotspots in
the world. With stock prices already at
historical high valuations, in my opinion, the aforementioned does inspire
still higher prices.
My thought for the day: Investing on the
basis that we want to become rich quickly is dangerous and is likely to lead us
into taking risks which will almost certainly turn out badly. The trouble is that we don't know as much as
we think we do. We're not very good at processing statistics and we're biased
by experience so a particularly vivid or recent memory will be given much more
weight than any amount of boring, dry, dull and extremely accurate data. Worse
still we simply can't predict the future for better or worse - the CEO of our favorite
investment may run off to South America with the CFO and a stack of cash; or a
stupid market crash may make wonderful companies available at knockdown prices.
Being humble in the face of this isn't cowardice or a cop-out, it's simply
straightforward commonsense.
Investing for Survival
15
risk management rules.
News on Stocks in Our Portfolios
Revenue of $326.64M (+13.7% Y/Y) beats by $1.37M.
Economics
This Week’s Data
The
September Dallas Fed manufacturing index was reported at 21.3 versus estimates
of 12.0.
In spite of
Hurricane Harvey (medium):
Other
From
one of the optimists I follow (medium):
Chinese
consumers pile on debt (medium):
Has
the Fed abandoned it reaction function (short):
Politics
Domestic
Quote of the day
(short):
International War Against Radical
Islam
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