The Morning Call
1/19/18
The
Market
Technical
The indices
(DJIA 26017, S&P 2798) took a rest yesterday, as investors finally focused
on today’s vote or lack thereof on the budget/immigration/continuing resolution.
Nevertheless, the Dow remained above the upper boundary of its short term
uptrend. Volume fell but was still high;
breadth weakened noticeably.
The VIX
continued to advance, closing above the upper boundary of its short term downtrend
for the third day, re-setting to a trading range. My bottom line continues to be that either
(1) somebody in stock land is doing serious hedging [of their equity positions]
or (2) volatility will likely be much higher going forward than it was in 2017
or both.
In any case, long term, the Averages remain robust
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
their long term uptrends. The technical assumption has to be that stocks are
going higher.
The long
Treasury fell again, this time finishing right on its 200 day moving average
(now support). While TLT remains in a
technical no man’s land, its recent pin action seems to be pointing to a
resolution on the downside (higher rates, stronger economy). To be clear, it is certainly not near the level
that would prompt that call; it is just fading in that direction.
Both the dollar
and GLD declined; that being a somewhat inconsistent performance---they usually
trade inversely. A falling gold price
would fit with the higher interest rate, stronger economy scenario. But that should be a cause for a higher
dollar.
This article
presents an interesting thesis---the dollar is sinking in the face of improving
US investor sentiment and signs of rising interest rates because foreign dollar
holders are losing confidence in the US/dollar.
That would provide the rationale for the recent indications that both
the Japanese and Chinese are selling dollars.
Bottom line: investors
took a rest yesterday after an active couple of day. Nonetheless, the current weight of technical
evidence is that stocks appear likely to go higher. But the further the current ‘melt up’ goes,
the more tenuous that assumption becomes.
I remain uncomfortable with the
overall technical picture.
Fundamental
Headlines
The
last two days have been busy in terms of data releases. Unfortunately, the majority of the stats
showed negative comparisons with estimates, guaranteeing that this week’s data
flow will be negative. It seems a bit
ironic that this would be occurring at the same time of an increasing awareness
(at least for me) that corporations are responding more positively to the tax
cut (and therefore could push economic activity higher) than originally
anticipated.
The
other event on the front burner is today’s senate vote (the house passed a
continuing resolution last night) or the lack thereof on the budget/immigration
bills or a continuing resolution. As
usual our ruling class is waiting until the bitter end to do anything. At present, the odds seem heaviest on kicking
the tough issues down the road and scoot by with a continuing resolution. Though clearly that does nothing to resolve
the important issues.
Goldman
on what happens if there is a shutdown (medium):
Bottom line: I have said more than once, the economy is
growing because of smart, hardworking businesses and workers; that in spite of
our ruling classes best efforts make their tasks harder than they need to
be. And they continue to do so. Witness the inability of congress to come up
with a budget, to say nothing about a responsible one. Witness Trump’s bashing our major trading
partners where less name calling and a little more diplomacy might work better. Witness the Fed which has once again waited
too long to begin the transition to normalized monetary policy.
That is what
makes the expansion of economic activity difficult and difficult to
forecast. I still think that if the
recent corporate investing and hiring moves become common then the long term
secular economic growth rate will rise. The
issue is one of magnitude and for our purposes how the economic improvement gets
valued. On that point, my opinion is that under the
best scenario that I can imagine, equities remain overvalued. Hence, I think it wise to own some cash for
your own protection. As you know, I am
50% invested and sleeping well.
A
different perspective on valuations (short):
News
on Stocks in Our Portfolios
Revenue of $8.18B (+15.0% Y/Y) beats by $50M.
Revenue of $22.54B (+3.5% Y/Y) beats by $490M
Economics
This Week’s Data
US
International
December
UK retail sales fell 1.5%.
Other
Café
Hayek on US/Mexico trade (medium):
Explosive
growth coming in US shale production (medium):
What
I am reading today
Quote of the day:
The long term care crisis (medium):
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