The Morning Call
1/10/18
The
Market
Technical
The indices
(DJIA 25385, S&P 2751) resumed their relentless move higher. Volume dropped
but remained high and breadth was strong.
Long term, they 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.
More on how
overbought the Market is (medium):
The long
Treasury got hammered (down 1 3/8%) on big volume, suggesting that bond
investors are starting to believe the strong economy/higher interest rate
scenario. Even though they historically
have a better handle on the economy than the stock boys, sooner or later the
persistent upward spike in equity prices had to make them start to reevaluate their
position. Plus the latest move by the
Bank of Japan (which I reported yesterday) reducing the magnitude of its bond
purchases added to the global QE unwinding theme. Following that there was a dog pile: Bill
Gross said the bond bull market is over and China announced it may cut its
Treasury holdings. While that is too
soon to assume rates are going higher, I am now considering it.
Weak
Treasury auction (short):
Bill
Gross calls an end to the bond bull market (short):
***overnight,
China said that it was considering reducing its US Treasury holdings.
In addition, the
other indicators that I follow are also hinting that global investor sentiment
is starting to follow the US equity Market: GLD was down, the dollar was
up---neither in the order of magnitude of the long Treasury but both moves occurred
on volume.
The only
potentially bad news for stock investors is that the VIX was up for the third
day in a row (in an upward trending Market).
That may be pointing to investor expectations that while equity prices
may continue their ascent, they may do so on increasing volatility.
I want to emphasize
that one day does not a trend make. But
we can’t ignore these signals. As usual,
follow through will tell the tale.
I remain
uncomfortable with the overall technical picture.
Fundamental
Headlines
The
Markets were really the story yesterday.
Certainly, it has been a slow week to date for economic dataflow. On the other hand, earnings reports will
start soon; and as I noted yesterday that is likely to provide a lift to equity
prices---not that they need any help.
The other news
item coming soon is the budget negotiations as well as the need to extend to
funding for the government---which are not only intertwined but are also caught
in the fight over funding of the Wall and disposition of the DACA (Deferred
Action of Childhood Arrivals) supplicants.
How our ruling class resolves
these issues is anyone’s guess; but like the upcoming earnings reports, it may
not matter given the prevailing mood among investors.
But
back to the Market---it is getting more overvalued every day. To the extent that you are invested, that is good
news. Nonetheless, I think it wise to
own some cash for your own protection.
As you know, I am 50% invested and sleeping well.
News on Stocks in Our Portfolios
Accenture
(NYSE:ACN) strikes a
deal to acquire 3D content producer Mackevision for an undisclosed
amount.
The German-based company
includes the award-winning visual effects team for Game
of Thrones.
Accenture says the addition
of the Mackevision will add state-of-the-art visualization capabilities to
its digital services portfolio.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew less rapidly than in the prior week.
Weekly
mortgage applications rose 8.3% while purchase applications were up 5.0%.
December
import prices increased 0.1% versus expectations of up 0.4% while export prices
fell 0.1% versus estimates of up 0.3%.
With the dollar down, I can understand export prices being lower but the
decline in import prices is odd.
International
***overnight,
December Chinese CPI was reported up 1.8% versus November’s reading of 1.7%;
PPI came in up 4.9% versus November’s 5.8%.
Other
Bubbles
pervade the world economy (medium):
Demographics
point to slower economic growth (medium):
Odds
of a government shutdown (medium):
Median
family net worth the lowest since 1962 (short):
My
reading list today
Sleep
deprivation will kill you
Astounding
images from Jupiter (short):
Ten
things investors can expect in 2018 (medium):
Waiting for the Market to
boom is a terrible investment strategy (medium):
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