Friday, December 15, 2017

The Morning Call--Don't worry, be happy

The Morning Call


The Market

The indices (DJIA 24508, S&P 2652) gave a little of their recent gains back yesterday as a couple of GOP senators expressed objections to the tax bill in its current form.  Volume declined again; breadth weakened.  The bottom line remains that both of the Averages continue to trade above their 100 and 200 day moving averages and are in uptrends across all time frames---with the assumption being that stock prices are going higher.
The VIX (10.5) rose another 3%, closing below its 100 and 200 day moving averages (both resistance) but above the lower boundary of its long term trading range.

The long Treasury was up, ending above its 100 and 200 day moving averages and the lower boundaries of a very short term uptrend, its short term trading range and long term uptrend.   So bond investors are not worried about higher rates or they are looking for a safety trade.

The dollar rebounded a tad, but still finished below its 200 day moving average (now resistance) but above its 100 day moving average (now support) and below the upper boundary of its short term downtrend.  Dollar investors also aren’t anticipating higher rates/economic strength nor the need for a safety trade.

            Gold was down slightly, remaining below its 100 and 200 day moving averages and within a short term trading range. 

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.  If you own enough cash to sleep at night, lay back and enjoy it.
Trading in UUP, GLD and TLT continued to reflect an economy that is less strong and/or less upward pressure on interest rates. The VIX seemed to be agreeing while stocks were more neutral in their response.  I remain confused and uncomfortable with the overall technical picture.


            Yesterday’s economic data was largely upbeat: weekly jobless claims fell, November retail sales were very strong, October business inventories fell but sales were up big, November export/import prices were mixed and the December Markit Composite PMI was disappointing.

David Stockman on the current economy (medium):

            Overseas, November UK retail sales were better than anticipated; November Chinese industrial output and retail sales were below estimates.

            ***overnight, the December EU manufacturing and services PMI’s were above forecasts.

            The only other headline was a couple of GOP senators suggesting that they might not be able to support the tax bill in its current form.  I don’t put a lot stock in the likelihood of any of these objections derailing the tax bill.  First, with the bill on the verge of going back to the house and senate, this is the point of max leverage for any legislator to try to extract an item on his/her agenda.  So all this is to be expected.  Second, the political necessity for passage is so powerful, I think the pressure will be intense to relinquish any personal agenda issue for the common (GOP) good.

Bottom line: stocks retreated yesterday on what I consider bogus headlines.  I continue believe that tax reform is coming (however, ineffective it may be).  Meanwhile, the global central bank monetary policies will keep the ‘everything is awesome’ dream alive.  In short, the major fundamental factors driving stocks higher remain in place, however outlandish current valuations may be. 

Enjoy the ride while it lasts, but be sure your portfolio has some protection like cash.

            Stocks no longer cheap relative to bonds (short):

       Investing for Survival
            Why now?

    News on Stocks in Our Portfolios
Oracle (NYSE:ORCL): Q2 EPS of $0.70 beats by $0.02.
Revenue of $9.63B (+6.2% Y/Y) beats by $60M.


   This Week’s Data

            The December Markit Composite PMI was reported at 53.0 versus expectations of 54.6.

            October business inventories fell 0.1%, in line; but sales rose 0.6%.

            The December NY Fed manufacturing index came in at 18.0, in line.


            Minsky and the Fed (medium):

            Odds of a recession (short):

            Student loan defaults accelerate (medium):

            Update on big four economic indicators (medium):

            Why a 2% inflation goal is so stupid (short):

                Fed stated policy and the money supply numbers (medium):



The FBI isn’t the only government ‘gang that can’t shoot straight’ (medium):

  International War Against Radical Islam

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