The Morning Call
11/16/17
The
Market
Technical
The indices
(DJIA 23271, S&P 2564) started the day as it has the last four days---down
big; the difference yesterday was that they couldn’t fight their way back to
the (near) flat line. Tuesday, they were
able to get close to neutral, yesterday, no recovery. Meanwhile,
volume was down and breadth remained weak.
Of course, this is the first teeny, weeny bit of cognitive dissonance
investors have faced since early September.
So it hardly gives reason to be doubting that stocks are going
higher. We may be seeing the reintroduction
of normality in the pin action; and even ‘may be’ isn’t for sure. The
bottom line is that both of the Averages remain above their 100 and 200 day
moving averages and are in uptrends across all time frames---and with the
assumption is that stock prices are going higher.
The VIX (13.3) was
13%, finishing above the upper boundary of its short term downtrend for the third
day, resetting to a trading range, above its 100 day moving average (now
support), above its 200 day moving average for the fourth day, reverting to
support and above the lower boundary of its long term trading range. As I suggested above, volatility may just be
returning to normal after an unusually placid period. At the moment, I think that is the most one
can say. Still its divergent behavior over
the last four trading days keeps a warning light flashing.
The long
Treasury was 1%; this time indicating that last Friday’s plunge may have been some
one-off occurrence. It closed back above
its 100 day moving average, one day after reverting to resistance (if it
remains there through the close on Friday, it will revert back to support),
above its 200 day moving average (now support) and above the lower boundaries
of its short term trading range and long term uptrend. Like
Tuesday, other segments of the long bond market were down. And like the VIX, it seems like something
could be going on beneath the surface.
The dollar was down
again, ending below its 200 day moving average (now resistance), below the
upper boundary of its short term downtrend, below the lower boundary of its
very short term uptrend, voiding it, but above its 100 day moving average (now
support). It appears that UUP is
confirming its downtrend---which suggests economic weakness or flight from the
dollar.
GLD was down, closing
back below its 100 day moving average (the fifth violation of this moving
average in the last week), 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. The technical assumption has to be that stocks are going higher.
Trading in UUP,
GLD and TLT remain out of sync with themselves, the VIX and stocks, and seem to
be pointing at a change in trends---but in different directions. I am watching for more follow through in all.
I remain
uncomfortable with the overall technical picture.
Fundamental
Headlines
Yesterday’s
economic stats were mixed to positive: weekly mortgage and purchase applications
were up, September business inventories were unchanged but sales were strong,
October retail sales were above estimates but ex autos, they were below,
October CPI and CPI ex food and energy were both in line and the November NY
Fed manufacturing index was disappointing.
Overseas, third
quarter Japanese GDP was above estimates; October UK unemployment hit a 42
month low; the Chinese fixed income markets are in turmoil.
And:
A quick look at
our ruling class:
(1)
the much Trump-touted Trump major news announcement was
anything but; it mostly consisted of self-praise,
(2)
the GOP congress continues to prove it is incapable of
following its own stated agenda. The
latest being a key desertion in the senate on the tax reform bill,
(3)
and perhaps the seminal moment in the tax reform debate,
Gary Cohn gets his a ha moment (medium and a must read):
Bottom
line: fiscal policy is a mess and the current versions of tax reform won’t
change that. Monetary policy is a mess
and with group in charge now, that isn’t going to change. The good news is that economy is straining to
increase growth, however paltry, in spite of the ruling class’ effort to thwart
its effort. The bad news is that the
Market is discounting an economic scenario is that is a wet dream. I would continue to sell stocks that have achieved
their upside price objective---that is the sell high part. The buy low part is investing in stocks of quality
companies that have been cut in half or worse.
Looking
for inflation in all the wrong places (medium):
Investing for Survival
A
little knowledge can be dangerous.
News on Stocks in Our Portfolios
Economics
This Week’s Data
September
business inventories were flat were expectations of a 0.1% increase; sales
soared 1.4%.
Weekly
jobless claims rose 10,000 versus an anticipated decline of 3,000.
October
import prices were up 0.2% versus estimates of up 0.4%; export prices were flat
versus consensus of +0.1%.
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Domestic
International War Against Radical
Islam
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