The Morning Call
10/27/17
This weekend is my annual pledge
class reunion. I leave after this
posting; so no Closing Bell. Back on
Monday.
The
Market
Technical
The indices (DJIA
23400, S&P 2560) recovered some of Wednesday’s loss yesterday. Volume was down, but still high; breadth was
mixed 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 (11.3) was
up fractionally---now the fourth day in a row in which it has acted contrary to
its historic inverse correlation with stocks. I still have no idea what that
means other than major turmoil between the buyers and sellers. 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), above its 200 day moving average (if it
remains there through the close next Tuesday, it will revert to support) and continues
to develop a very short term uptrend. It
still looks like the July low was the bottom.
The long
Treasury was down (as was the entire fixed income complex), finishing below its
100 day moving average (now resistance), below its 200 day moving average for
the second day (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 less than 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 soared
1%, ending within in its short term downtrend and below 200 day moving average
(now resistance) and back above its 100 day moving average (now resistance; if
it remains there through the close on Monday, it will revert to support) and
has begun developing a very short term uptrend.
GLD fell 7/8 %, finishing
below its 100 day moving average (now support; if it remains there through the
close on Monday, it will revert to resistance), still above its 200 day moving
average (support) and the lower boundary of a short term uptrend.
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.
Despite some churn, this week’s pin action has still continued its
upward path. The technical assumption
has to be that stocks are going higher.
Trading in UUP,
GLD and TLT were very consistent yesterday.
Despite a dovish ECB meeting, long bonds and the dollar popped, while
gold got mangled---all signs of a tilt in sentiment towards higher interest
rates (inflation/economic activity).
I remain uncomfortable
with the overall technical picture.
Fundamental
Headlines
Yesterday’s
economic data was weighed to the upside: weekly jobless claims rose less than
anticipated and October Kansas City Fed manufacturing index was strong; on the
other hand September pending home sales were disappointing. Nothing overseas.
***overnight,
September UK retail sales fell more than expected while retail employment
plunged---rising retail wages are being cited as the cause of the latter.
While
there was little by way of data overseas, there were several developments that
bear discussion.
First,
the ECB met; and while it announced the commencement of the unwinding of its QE
program, it was dovish in tone---which is to say that it will do so cautiously
and won’t commit to ending it.
Nonetheless, the first step is to reduce the rate of monthly bond purchases---which
gives something for both the hawks and the doves to cling to: it will still be pumping
liquidity into the system (doves) but will decrease the magnitude
(hawkish). I tend to side with the hawks
on this issue simply because somebody else is going to have to absorb those
bonds that the ECB otherwise would have.
That said, it is not like the ECB is slamming on the brakes, pushing
rates higher short term.
As
a side bar to the discussion of central bank monetary policy, remember the Fed’s
stated goal was to begin reducing its bond purchases in October and to likely raise
rates in December. In this article,
Lance Roberts points out that as of 10/26, the Fed has done diddily.
Counterpoint
from Ray Dalio (medium):
Second,
the Catalans reversed themselves twice yesterday on the threat to seek
independence---the latest being that a vote will taken today.
***overnight:
Back at home, the
house adopted the senate’s FY2018 budget resolution. The good news is that by eliminating the
reconciliation process, it moves up the timetable for tax reform. The bad news is that (1) the budget deficit
in that resolution is greater than in FY2017 and (2) the tax reform measure, in
its current version, adds $1.5 trillion to the national debt over the next ten
years. I will save you another diatribe
on the likely negative impact of a higher national debt on economic growth.
Bottom
line: given the dovish tone in the ECB policy statement, Lance Roberts’ reporting
on Fed activity and the house passage of the senate’s budget resolution, it is
not surprising that stocks would have happy feet. What is a bit confusing is that bonds, the
dollar and gold acted like higher rates are coming. Of course, equity investors could be assuming that easy
money and higher rates are entirely consistent and good news (???). Whatever the rationale, I have long since
given up on trying to figure out what the stock guys are thinking in this
cycle.
What
I do take issue with is the assumption that the current budget resolution and
the tax reform package, in its current form, are good economic news. To be clear, a simple, fairer tax structure
is a social positive. It might even be a
marginal plus for the long term secular growth rate of the economy. But, in my opinion, cost of servicing an ever
higher level of debt will eat up the tax savings to the consumer and business.
Clarifying
the ‘repatriation’ of foreign profits. (medium):
My
thought for the day: every five to seven years,
people forget that recessions occur every five to seven years. Be careful.
Investing for Survival
Risk
perception versus risk profile.
News on Stocks in Our Portfolios
Revenue of $66.2B (+12.8% Y/Y) beats by $2.81B
Revenue of $24.54B (+11.9% Y/Y) beats by $980M.
Economics
This Week’s Data
September
pending home sales were unchanged versus expectations of a 0.4% increase.
The October Kansas City
Fed manufacturing index was reported at 23 versus its September reading of 17.
The initial third quarter GDP reading was reported
up 3.0% versus consensus of 2.5% and second quarter’s 3.1%; the GDP price index
came in at +2.2% versus projections of +1.6% and second quarter’s +1.0%.
Other
QE
and Japan (medium):
China’s
Minsky moment (medium):
More
from Kyle Bass on China (medium):
http://www.zerohedge.com/news/2017-10-26/kyle-bass-china-will-regret-ceding-so-much-power-xi-jinping
Politics
Domestic
The king of
deregulation (medium):
International War Against Radical
Islam
Why
do we have troops in Niger (medium):
The
answer (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