The Morning Call
11/2/17
The
Market
Technical
The indices
(DJIA 23435, S&P 2579) had a roller coaster day, ending modestly higher
(the relentless drive higher). Volume
was down, but still high; breadth was mixed but remains at a positive
level. Both remain above their 100 and
200 day moving averages and are in uptrends across all time frames.
The VIX (10.2)
was up slightly---finishing below the upper boundary of its short term
downtrend, below 100 day moving average (now resistance), below its 200 day
moving average (now resistance), but
above the lower boundary of its long term trading range and continues to
develop a very short term uptrend. There
is a narrowing gap between these multiple resistance/support forces. How it gets resolved will likely be a longer
term directional signal.
The long
Treasury up, ending above its 200 day moving average (now support), above the
lower boundaries of its short term trading range and long term uptrend, right on
the upper boundary of its very short term downtrend but below its 100 day
moving average (now resistance). It is
very close to a trend change.
The dollar rose,
ending below 200 day moving average (now resistance), very close the upper
boundary of its short term downtrend and above its 100 day moving average (now
support) and continues to develop a very short term uptrend. Again, a trend change could be at hand.
GLD increased,
finishing right on its 100 day moving average (now resistance), above its 200
day moving average (support) and the lower boundary of a short term uptrend. Again, potential trend change.
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 recent churn, the technical assumption has to be that stocks are going
higher.
Trading in UUP,
GLD and TLT were again out of sync with themselves and stocks, but seem to be
pointing at a change in trends.
I remain
uncomfortable with the overall technical picture.
Fundamental
Headlines
Lots
of data yesterday, mostly positive but with a few caveats: weekly mortgage and purchase applications and
the October ISM manufacturing index were negative; the October manufacturing
PMI and October light vehicle sales were positive; the September (better than
expected)/revised (down big) August construction spending and the October
(improved)/revised September (down big) ADP private payroll reports were mixed.
Much of the confusion in the latter two
numbers is attributable to the impact of hurricane season on the bean counters. I have to assume that this part of a trend---meaning
the numbers have a bit less credibility than usual.
Overseas,
the October Chinese Caixin manufacturing PMI was reported in line with
consensus; the October UK manufacturing PMI was above estimates.
***overnight,
the October EU manufacturing PMI was better than anticipated; October German
unemployment declined.
On
the fiscal side, the GOP delayed the presentation of its tax reform bill
(cough, cough).
***overnight,
the latest rumor is that the corporate tax cut will be temporary (medium)
Monetary
policy was where the headlines were created:
The
Wall Street Journal reported that Trump has selected Jerome Powell to be Fed
chairman when Yellen departs. As I noted
in Monday’s Morning Call, he seemed the most likely candidate since he is an
easy money man (i.e. dove) and Trump hardly wants anyone heading the Fed that
would get aggressive shutting down QE since (1) it would likely have a negative
impact on the stock market---whose advance in the last year the Donald has
attributed to himself and (2) Trump made his money using lots of debt---the
higher the cost of debt, the less he will like it.
A little history on policy
expectations for past new Fed heads and then what happened (medium):
The FOMC released its
statement following the November meeting.
There was not much newsworthy in the sense of surprises. The narrative did sound just a tad more
hawkish as it said that the Fed (1) expects inflation to stabilize, (2) thinks
the near term economic risk to the economy are balanced and (3) expects the
economy to grow in a manner that would warrant a gradual increase in the Fed
Funds rate. As a reflection of Market
action, the ‘odds’ of a December rate hike remained unchanged at 87%. That said, as I noted above, enough people in
the bond pits think that the economy is not strengthening and long rates aren’t
going up to push the long bond toward re-establishing an uptrend.
Bottom line: despite the
potential for real change, it appears that it is business as usual: (1)
unwinding QE at a snail’s pace, (2) with a new Fed chair that is just as dovish
as Yellen and (3) after eight years of promising fiscal reform, the GOP still groping
around like a bear cub with his first hard on.
And
yet, everything is awesome.
The
latest from Doug Kass (medium):
Investing for Survival
Five
cognitive biases the hurt investors the most.
News on Stocks in Our Portfolios
Revenue of $5.9B (-4.4% Y/Y) beats by $100M.
Revenue of $3.08B (+5.5% Y/Y) beats by $20M.
Revenue of $3.17B (-1.9% Y/Y) beats by $20M.
Economics
This Week’s Data
The
October manufacturing PMI came in at 54.6 versus expectations of 54.5.
The
October ISM manufacturing index was 58.7 versus estimates of 59.5.
September
construction spending was up 0.3% versus consensus of 0.0%; but the August
number was revised from +0.5% to +0.1%,
October
light vehicle sales were 18.1 million units versus forecasts of 17.5 million
units.
Weekly
jobless claims fell 5,000 versus an anticipated decline of 2,000.
Third
quarter nonfarm productivity increased by 3.0% versus expectations of +2.5%;
unit labor costs were up 0.5% versus estimates of up 0.6%.
Other
China’s
‘ghost collateral’ (medium):
Politics
Domestic
What a fine
ruling class we have.
Presented with
no comment (medium):
Also with no
comment (medium):
Limiting the
executive branch’s ability to start a war (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.
No comments:
Post a Comment