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Thursday, November 30, 2017

The Morning Call--The tax bill is junk legislation

The Morning Call

11/30/17

The Market

Technical

The indices (DJIA 23940, S&P 2626) had another mixed day (Dow up, S&P down, though not by much). Volume was up and breadth improved. 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 (10.7) was up another 6 ½%, closing above the lower boundary of its long term trading range, above its 200 day moving average (now resistance; if it remains there through the close next Monday, it will revert to support) and below its 100 day moving average (now resistance).

The long Treasury spiked 1% on heavy volume, ending below the lower boundary of its newly developing very short term uptrend, right on its 100 day moving average (now support), above its 200 day moving average (now support) and above the lower boundaries of its short term trading range and long term uptrend. This is the first crack since late October in the bond guys’ weak economy, tighter Fed narrative.

The dollar was down one cent, finishing below its 100 and 200 day moving averages (now resistance) and solidly within a short term downtrend and within a developing very short term downtrend---no crack here.

Gold was off ½ %, though it remained above its 100 day moving average for the third day, above its 200 moving average (now support) and in a short term uptrend. GLD moved in sync with TLT.

http://www.zerohedge.com/news/2017-11-29/gold-slammed-massive-volume-key-technical-support-gdp-beat

Bottom line: hasn’t changed---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 are back out of sync with themselves (sluggish economy, weak interest rates) and with the VIX and stocks. I remain confused and uncomfortable with the overall technical picture.

This is not normal (short):

http://theirrelevantinvestor.com/2017/11/28/this-is-not-normal/

Fundamental

Headlines

Yesterday’s economic data continued its winning way. Revised third quarter GDP was reported up 3.3% which was in line but an improvement from the prior reading; corporate profits also came in above its previous report, October pending home sales were above estimates and while weekly mortgage applications declined, the more important purchase applications were up. Overseas, nothing.

***overnight, the November Chinese manufacturing and non-manufacturing PMI’s were ahead of estimates; November EU inflation was below.

Yellen testified before congress for the last time, leaving a body of work that will surely be quoted often in the future. Her tenor during the question and answer session did not change materially from that in her prepared remarks (which I linked to yesterday).

The Fed released its latest Beige Book. It was not quite as buoyant in tone as I had expected. Still it pictured progress (medium):

http://www.zerohedge.com/news/2017-11-29/best-beige-book-anecdotes-its-no-longer-possible-build-starter-home-under-200k-cleve

The senate continues to work to put together a tax proposal that is better characterized by junk legislation than anything that addresses a simpler, fairer or economically stimulative reform.

This comment on the senate bill from a lion in our industry---Jack Vogel (short and today’s must read):

http://thereformedbroker.com/2017/11/29/a-moral-abomination-saint-jack-weighs-in-on-tax-proposal/

The bottom line: I believe that the unwind of the gross mispricing and misallocation of assets will not end well. I just don’t know what the trigger event is. The GOP tax circle jerk is worse than nothing except for its political implications. In my opinion, it will not lead to economic growth; but it will lead to higher debt and an additional constraint on the economy; it will lead to more stock buybacks and increased dividends none of which will create jobs or raise tax revenues. When the electorate figures this all out, there will likely be hell by the GOP.

Investing for Survival

Expert judgment.

http://awealthofcommonsense.com/2017/11/expert-judgment-or-lack-thereof/

News on Stocks in Our Portfolios

Donaldson (NYSE:DCI): Q1 EPS of $0.46 beats by $0.04.

Revenue of $644.8M (+16.6% Y/Y) beats by $44.73M.

Microsoft (NASDAQ:MSFT) declares $0.42/share quarterly dividend, in line with previous.

Economics

This Week’s Data

October pending home sales rose 3.5% versus expectations of up 1.0%.

http://www.calculatedriskblog.com/2017/11/nar-pending-home-sales-index-increase.html

Weekly jobless claims fell 2,000 versus estimates of being flat.

https://www.advisorperspectives.com/dshort/updates/2017/11/30/weekly-unemployment-claims-down-2k

October personal income rose 0.4% versus forecasts of +0.3%; personal spending was up 0.3%, in line; the PCE price indicator was up 0.2%, also in line.

Other

The latest from Jeffery Snider (medium):

http://www.alhambrapartners.com/2017/11/22/durable-goods-only-about-halfway-to-real-reflation/

The latest on Brexit (medium):

https://www.nakedcapitalism.com/2017/11/theresa-may-capitulates-brexit-settlement-agrees-pay-full-liabilities-will-brexit-ultras.html

US rejects China’s ‘market economy; status (medium):

http://www.zerohedge.com/news/2017-11-30/us-fights-chinas-market-economy-status-threatens-future-wto

Politics

Domestic

International

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Friday, October 16, 2015

The Morning Call---Nothing matters but QE

The Morning Call

10/16/15

The Market

Technical

The indices (DJIA 17141, S&P 2023) attacked the September highs for the second time yesterday; though to date little has changed in the technicals. The Dow ended [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] in a short term downtrend {17076-17792}, [c] in an intermediate term trading range {15842-18295}and [d] in a long term uptrend {5369-19175}.

The S&P finished [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] below the upper boundary of a very short term downtrend, [c] in a short term downtrend {1986-2048}, [d] in an intermediate term uptrend {1935-2728} [e] a long term uptrend {797-2145}.

Volume increased---a positive after the recent period in which stocks advanced on declining volume. Breadth was strong. The VIX (16.0) plunged 11% finishing [a] back below its 100 day moving average, which I am leaving on neutral, awaiting more follow through, [b] within a short term downtrend and [c] in intermediate term and long term trading ranges.

The long Treasury was off slightly, ending above its 100 day moving average, still support; and within very short term, short term and intermediate term trading ranges.

http://blog.gavekalcapital.com/bonds-are-not-buying-the-rally-off-the-824-low-calling-into-question-cyclical-leadership-trend/

GLD declined, but still closed [a] above its 100 day moving average, now support [b] above the upper boundary of its a short term trading range for the second day; if it remains there through the close today, it will re-set to a short term uptrend, [c] above the upper boundary of its intermediate term downtrend for a second day; if it remains there through the close next Monday, it will re-set to an intermediate term trading range and [d] within a long term downtrend. If GLD can successfully challenge both its short and intermediate term trends, I will view that as a pretty good sign that a bottom is in.

The dollar rose back above the lower boundary of its short term trading range, negating yesterday’s break. It remained below its 100 day moving average and within an intermediate term trading range.

Bottom line: stocks had worked off enough their overbought position to give them room to move up again; and move up they did. The S&P closed right on its September high. If it breaks through this boundary, then I think the odds of a challenge of its all-time high go up considerably. This might be a good set up for a nimble trader; however, given the fundamentals and disparity between current prices and our Fair Values, it is not a place for investors.

Gold, which didn’t do much yesterday, appears to be on the cusp of successfully challenging three resistance levels (100 day moving average, upper boundaries of its short and intermediate term trends). If successful, it certainly suggests that it has finally bottomed. If that occurs, I will likely nibble.

The primary trend matters (short):

http://thefelderreport.com/2015/10/14/ignore-the-primary-trend-at-your-peril/

Fundamental

Headlines

Yesterday’s US economic news was mixed to negative. The good news was that weekly jobless claims were lower than expected. The mixed news was the September CPI numbers. The bad news was the October NY and Philly Fed manufacturing indices as well as the September US budget surplus. In addition, yesterday’s earnings reports were anything but inspiring.

***overnight, Fitch downgraded Brazil’s credit rating and India reported its September import and exports were both down over 25% year over year.

None of this mattered because once again a dovish Fed captured the hearts and souls on investors. In this particular case, an article by Fed mouthpiece John Hilsenrath suggested that a rate hike was off the table for 2015---which was aided by comments from global bankers advocating more QE. That seemed to kick in the stock buying afterburners; and the rest, as they say, is history.

Bottom line: poor US economic data---not a problem; lousy international economic stats---not a problem; disappointing earnings reports---not a problem; an easy Fed, pursuing a policy with virtually no redeeming qualities and few visible affects other than the gross misallocation of asset investments and prices---a twenty one gun salute.

What is wrong with this picture? Do investors believe that no matter how poorly the economy/corporate earnings perform as long as the Fed is easy, nothing else matters? That makes no sense. True they may think that the economy is just bad enough to keep the Fed on the sidelines but good enough to avoid recession. But that is a very fine line to walk, especially with stocks 5% off their all-time highs. I continue to believe that fundamental risk/reward equation is very unattractive.

Economics

This Week’s Data

The October Philadelphia Fed manufacturing index was reported at -4.5 versus expectations of -1.0.

The September US Treasury budget surplus was $91.1 billion versus estimates of $95.0 billion.

Other

The last thirty years of economic history is about to change (medium):

http://qz.com/519253/china-just-upended-rules-that-governed-the-global-economy-for-the-last-30-years/?curator=thereformedbroker&utm_source=thereformedbroker

Update on big four economic indicators (medium):

http://www.advisorperspectives.com/dshort/updates/Big-Four-Economic-Indicators-RS.php

Politics

Domestic

International