The Morning Call
10/18/17
The
Market
Technical
The indices (DJIA
22997, S&P 2559) were up again, with the Dow closing in on 23000 (it traded
above that level intraday). Volume was up
slightly and breadth continued strong.
Both remain above their 100 and 200 day moving averages and are in
uptrends across all time frames.
Retail investors
are now all-in (medium):
The VIX (10.3) was
up 3 ½ %, but is still below the upper boundary of its short term downtrend,
below its 100 and 200 day moving averages, back above the lower boundary of its
long term trading range. In addition, it
closed above the upper boundary of a very short term downtrend and has now made
a second higher low. So far, it failed
to make a new low and has to all the appearances has made a higher bottom.
The long
Treasury rose, finishing above its 100 and 200 day moving averages (support)
and the lower boundaries of its short term trading range and its long term
uptrend. It has also broken a very short
term downtrend. On the other hand, short
rates continue to rise, flattening the yield curve. That suggests investor concern about a near
term rate rise but also a weak economy---not a healthy combination.
The dollar rose
slightly, but remained in its short term downtrend and below its 100 and 200
day moving averages. Last week, it is successfully challenged a developing very
short term uptrend.
GLD fell, ending
above its 100 and 200 day moving averages (support) and the lower boundary of a
short term uptrend. Last week, it
successfully challenged a developing very short term downtrend.
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.
Trading in UUP,
GLD and the front end of the yield curve are pointing at a rise in the Fed
Funds rate; but the long bond is suggesting that the economy is not as strong
as equity investors seem to think.
I remain uncomfortable
with the overall technical picture.
Fundamental
Headlines
Yesterday’s
US economic data was generally upbeat: month to date retail chain store sales,
September industrial production and the October housing market index were all
better than anticipated.
Overseas,
the stats were a bit more mixed: the September UK inflation rate hit a five
year high; October German investor sentiment rose slightly; September EU car
sales declined.
***overnight,
the September UK jobless rate hit a 42 year low; BOE head Carney raised the
problem of the continuity of derivative contracts as a result of Brexit
(medium):
http://www.zerohedge.com/news/2017-10-17/carney-reveals-europes-potential-achilles-heel-brexit-talks
In addition, the Chinese Communist
Congress convened to create its new five year plan for economic growth; the US
Treasury declined to name any country a currency manipulator, including China.
Again,
stock prices were investors’ focus of the day, much of it obsessing over the
Dow trading above the landmark 23000 level.
And
again, there were other news items that held investment significance:
(1)
the Iraqi’s and Kurds quickly resolved their boundary
dispute, lessening the risk of disruptions in oil coming out of Iraq,
(2)
congress is scrambling to extend healthcare insurance
payments that Trump ordered terminated last week---though he indicated a willingness
to compromise (short):
(3)
the third round of NAFTA negotiations end ‘successfully’;
though behind the scenes Mexico and Canada are not happy dudes (short):
***overnight,
Mnuchin admitted that tax reform was unlikely to get done this year (short):
Bottom
line: yesterday’s economic numbers notwithstanding, the economy is not that
strong. Yet the Fed is talking up rate
hikes. The bond market is describing
exactly that scenario. As you know, I am
not worried about the economic impact of a tighter Fed; but I do believe that
unwinding QE will lead to an unwind of the gross mispricing and misallocation
of assets.
I
continue to lighten up on holdings that have reached their Sell Half Range and
believe that cash is currently a valuable asset.
My
thought for the day: in investing, humility
is paramount. As Nate Silver emphasizes in his book, “The Signal and the
Noise,” we readily overestimate the degree of predictability in complex
systems. We need to promise less and expect less. Things are still not likely
to turn out the way we hope, expect or claim, but at least our embarrassment
will be less when they don't---when life happens.
Investing for Survival
14 mistakes that
can wreck your retirement.
News on Stocks in Our Portfolios
Revenue of $2.64B (+1.5% Y/Y) misses by $10M.
Revenue of $19.15B (-0.4% Y/Y) beats by $550M.
Economics
This Week’s Data
Month
to date retail chain store sales grew at a faster pace than the prior week.
September
industrial production rose 0.3% versus expectations of +0.2%; capacity
utilization came in at 76.0 versus estimates of 76.2.
The
October housing market index was reported at 68 versus forecasts of 64.
Weekly
mortgage applications rose 3.6% while purchase applications were up 4.0%.
September
housing starts fell 4.7% versus estimates of a 1.0% decline; building permits
dropped 4.5% versus projections of -4.7%.
Other
Update
on big four economic indicators (medium):
Bernanke
is worried. So? (medium and a must
read):
Here is another
rip at the Fed (medium):
Thought
for the day (short):
Politics
Domestic
Presented with
no comment (medium):
CIA urges delay
in the release of Kennedy assassination documents (medium):
International War Against Radical
Islam
Is
Trump making the same mistake with Iran that Bush made with Iraq? (medium and a
good read):
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