Friday, November 10, 2017

The Morning Call--Tweedledum or Tweedledee

The Morning Call


11/10/17
The Market
         
    Technical

The indices (DJIA 23461, S&P 2584) suffered some severe whackage yesterday, though they closed well off their lows (a hitch in the relentless drive higher? probably not.).  Volume rose; breadth weakened.  Both remain above their 100 and 200 day moving averages and are in uptrends across all time frames. 

The VIX (10.5) jumped 7 ¼ %---but still finished below the upper boundary of its short term downtrend, below 100 day moving average (now resistance), below its 200 day moving average (now resistance).  However, it ended back above the lower boundary of its long term trading range, voiding a second break in the last week.  While it is still on the verge of a directional change, the July low 8.8 remains the bottom.

The long Treasury was down, ending above its 100 and 200 day moving averages (now support) and above the lower boundaries of its short term trading range and long term uptrend.   It is now building a very short term uptrend.

            And:

The dollar declined, ending below its 200 day moving average (now resistance), below the upper boundary of its short term downtrend, but above its 100 day moving average (now support) and continues to develop a very short term uptrend.  (Still basically trendless).

GLD rose, closing above its 100 day moving average for the second day (if it remains there through the close today, it will revert to support), above its 200 day moving average (support) and the lower boundary of a short term uptrend.  (Gaining strength)

 Bottom line: yesterday’s pin action notwithstanding, 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 were again out of sync with themselves, the VIX and stocks, but seem to be pointing at a change in trends---in different directions.  As you can deduce from my recent links, the most concerning divergence is in the bond market.  Its rise suggest a weaker economy or a safety trade, neither of which is a plus for stocks.

I remain uncomfortable with the overall technical picture.

    Fundamental

       Headlines

            Not one but two minor datapoints were released yesterday: weekly jobless claims rose more than expected; September wholesale inventories were in line while wholesale sales were a touch better anticipated.   Nothing overseas.  ZZZZZZZZ

            ***overnight, September UK industrial output was better than estimates while construction spending was worse.

            Both the senate and the house released their amended versions of tax reform.  I am linking to them and an analysis that outlines each bills major provisions and how they differ from each other; so I won’t waste your or my time on the details.

            House bill:

                Senate bill:

My bottom line remains that this is an effort in futility.  Neither version is all that great.  I  discussed last week at length (the 11/3 Morning Call and 11/4 Closing Bell) how this (these) plans were not simpler, not fairer and because of the budget blowing deficits they create, wouldn’t contribute to economic growth---or if they did, only marginally so. 

            For those of you that want a review of why they aren’t simpler, fairer or pro-growth, see below.  I would disagree with the author that the motivation for pushing the tax bill has more to do with politics than personal wealth; but the results are still the same (medium):

Hence, discussing either version or comparing and contrasting them is akin to arguing about the number of angels that can dance on a pin head.  It is a useless exercise.  This whole effort is a desperate attempt by the GOP to deliver on a campaign promise which shouldn’t have been given in the first place in order to justify their place in the ruling class.   In my opinion, if either version or some compromise is enacted, it will do more harm than good.

            That said, it would seem that the odds that a tax reform bill will be passed are rising.  The fact that both versions are out, that they aren’t that far apart on most issues suggests that the nation will get a tax bill.  So the GOP will likely get its tax reform that they can tout during the 2018 elections; but the nation, in my opinion, will hardly be better off.




            In other news, Saudi Arabia orders its citizens to leave Lebanon (medium):

            Kuwait orders its citizens to leave Lebanon (medium):

            Bottom line: however, happy or unhappy investors are about the house/senate tax reform bills, in my opinion, has little relevance; at least with respect to the economy.  As you know in my opinion, both measures’ economic impact in their current form are a neutral at best.  However, given the anticipation of reform, passage would almost surely be a boon to Market psychology---whatever the final product looks like.  So the rising prospect of passage is likely to keep alive the current relentless move higher in stock prices---all other things being equal. 

            The only issue is how long it takes to appreciate the emperor’s new clothes.

            My thought for the day: Singer Rihanna nearly went broke and fired her financial advisor, who described her situation well: "Was it really necessary to tell her that if you spend money on things, you will end up with the things and not the money?"

       Investing for Survival
   
            Considerations for cashing out of the Market.


    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

            September wholesale inventories rose 0.3%, in line, while wholesale sales edged higher.

   Other

Politics

  Domestic

  International War Against Radical Islam


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 tweedledee

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