10/26/17
The
Market
Technical
The indices (DJIA
23329, S&P 2557) failed to sustain any follow through from Tuesday’s strong
performance. Volume was down, but still
high; breadth weakened but is still very overbought. Both remain above their 100 and 200 day
moving averages and are in uptrends across all time frames.
The VIX (11.2) was
up fractionally---surprisingly modest for a big Market down day. This keeps alive a string of three days in
which the VIX acts contrary to expectations.
I am not sure what that means other than major turmoil between the buyers
and sellers. How and when the VIX
re-establishes its normal relationship should give us directional information
on the Market. The index remained below
the upper boundary of its short term downtrend but above the lower boundary of
its long term trading range, above its 100 day moving average for the third day,
(reverting to support), right on its 200 day moving average and continues to
develop a very short term uptrend. It
still looks like the July low was the bottom.
And:
The long
Treasury was down, finishing below its 100 day moving average (now resistance),
below its 200 day moving average (now support; if it remains there through the
close next Monday, it will revert to resistance), is now developing a very short
term downtrend, is a point away from the lower boundary of its short term
trading range but remains above the lower boundary of its long term
uptrend.
The dollar declined,
ending within in its short term downtrend and below 200 day moving average (now
resistance) and back below its 100 day moving average, voiding Tuesday’s break.
GLD rose two
cents, finishing above its 200 day moving average (support) and the lower
boundary of a short term uptrend; it ended right on its 100 day moving average
for a second day.
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.
I remarked in
Wednesday’s Morning Call that Tuesday’s strong pin action was ‘evidence of just how strong the underlying
momentum in the Market is’. It only
took one day to make a liar out of me. Once
again, follow through is always a key to the investment importance of new information. However, I don’t think that negates anything
with respect to the overall upward momentum in the Market. Yesterday’s performance could have been just
noise. The technical assumption has to
be that stocks are going higher.
Trading in UUP,
GLD and TLT remains inconsistent. The long
Treasury’s poor price action yesterday was indicative of the performance of the
entire fixed income complex and seemed to be pointing to a shift in bond
investors’ outlook towards higher rates.
Yet the performances of the dollar which normally rises on higher rates
and of GLD which normally declines on higher rates, pointed at just the
opposite.
I remain uncomfortable
with the overall technical picture.
Fundamental
Headlines
Yesterday’s
economic stats were upbeat: while weekly mortgage and purchase applications
were weak, September durable goods orders (primary indicator) and September
housing starts (also a primary indicator) were both strong.
Overseas,
the third quarter UK GDP were higher than anticipated and October German
business confidence was better than expected.
***overnight,
the ECB (1) left rates unchanged, (2) will continue current bond buying program
through year end, (3) will cut those
monthly purchases in half [E60 billion to E30 billion] from January 2018 to
September 2018, (4) will continue to reinvest the proceeds of the maturing
bonds that it holds as long as necessary.
While it was pretty much expected, early trading suggests a dovish take
by investors.
In
addition, the Catalan government backed off threats to secede from Spain
(medium):
The
main headline yesterday remained Market performance---or the lack thereof. Specifically, the failure of the indices to
follow through on Tuesday excitement over corporate earnings while receiving
positive economic news.
Bottom
line: I raised two questions in yesterday’s Morning Call:
(1)
how significant were Tuesday’s earnings surprises? The Market’s answer appears to have been ‘damn
little’. However, just as important, is
the economy. That is, were they a sign
that the economy’s growth rate is picking up?
As you know, I have been lamenting the absence of any indication that a
more business friendly regulatory environment and an improving EU economy could
be positively impacting US growth. Well,
those better than expected earnings combined with the strong economic numbers
several weeks ago hold out hope that the US economy may be getting out of its
rut, however, meager any improvement may be.
To be sure, at this point, ‘hope’ is the operative
word. But at least we have a couple of
green shoots that could be augmented by this week’s economic data---which
appears to be on the way to another strong one for the primary indicators. That said, remember I already have some pick
up in the economic growth rate in our forecast; so I am not getting jiggy over
this potentially better news.
(2)
how will the central banks factor this data [again
assuming they are connected and portray an improving economy] into their models,
in particular as it relates to the speed and magnitude of monetary policy
changes? The bond market seems to be
telling us that these better stats will add support to the central bank
motivation to push forward with the unwind of QE. As you know, I hold the predicative value of bond
investors’ action over that of equity investors. That said, the current move to higher rates
is short enough in duration that I think it too soon to conclude the great
unwind has begun. But the yellow light
is flashing.
Goldman
on who will be the equity buyers in 2018 (medium):
My thought for the day: only invest in
products and companies you can explain to a six-year old. In investing, simple is better. Make sure you understand exactly why you own
a stock, bond or other investment product.
That will help you know exactly why/when you want/need to sell it.
Investing for Survival
Physical
strength is money in the bank.
News on Stocks in Our Portfolios
Revenue of $1.22B (+11.9% Y/Y) misses by $10M.
United Parcel Service (NYSE:UPS): Q3 EPS of $1.45 in-line.
Revenue of $15.98B (+7.0% Y/Y) beats by $360M.
Revenue of $2.9B (+6.6% Y/Y) beats by $30M.
Economics
This Week’s Data
September
housing starts rose 18.8% versus expectations of down 0.8%.
The September US trade
deficit was $64.1 billion versus estimates of $63.9 billion.
Weekly
jobless claims rose 10,000 versus forecasts of up 13,000.
Other
Who’s
economic recovery? (medium):
Politics
Domestic
International
The political tensions in
Spain/Catalonia continue to escalate (medium):
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
No comments:
Post a Comment