The Morning Call
11/29/16
The
Market
Technical
The indices
(DJIA 19097, S&P 2201) experienced their first rough day in the last three
weeks, though they managed to hold above the magical ‘round’ numbers of
19000/2200. Volume was up noticeably;
breadth weakened but that is from very overbought levels. The VIX was up 6 ½%; however, it remains
solidly below its 100 and 200 day moving averages, within a short term
downtrend and below the lower boundary of its former very short term uptrend.
The Dow ended
[a] above on its 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] in a short term uptrend {18054-20114}, [c] in
an intermediate term uptrend {11568-24418} and [d] in a long term uptrend
{5541-20148}.
The S&P
finished [a] above its 100 day moving average , now support, [b] above its 200
day moving average, now support, [c] within a short term uptrend {2106-2450},
[d] in an intermediate uptrend {1991-2593} and [e] in a long term uptrend {881-2419}.
The long
Treasury lifted for a second day, but still finished below its 100 day moving
average (now resistance), below its 200 day moving average (now resistance),
below a key Fibonacci level, in a very short term downtrend, in a short term
trading range and in an intermediate term trading range.
GLD was up 1%, ending
below its 100 day moving average (now resistance), below its 200 day moving
average (now resistance) and below the lower boundary of its short term
downtrend.
The dollar fell,
but still reset to a short term uptrend.
Bottom line: yesterday
was an adjustment day as stocks and the dollar (which have been strong)
retreated and bonds and gold (which have been weak) recovered. However, they all had reached technically
stretched extremes, so I don’t think that this one day’s performance is a sign
of some kind of reversal. Most likely it
just began the process of consolidation.
With the Averages having convincingly reset their short term trends to
up, I am assuming that they will eventually challenge the upper boundaries of their
long term uptrends.
Fundamental
Headlines
Not
much data released yesterday. In the US,
the November Dallas Fed manufacturing index was up. No stats from overseas.
***overnight,
France’s third quarter GDP was in line while October consumer income and
spending were ahead of estimates; November EU economic and industrial
confidence were below consensus while consumer confidence was in line.
Still
there was other economically related news:
(1)
OECD upped its global growth forecast (medium):
(2)
Bank of China is starting to tighten monetary policy
ahead of the Fed’s probable rate hike (medium):
(3)
the Italian referendum is drawing close and investors
are getting nervous about its impact on that country’s banks (medium):
As a result, Italian bonds are getting
whacked (medium):
But the ECB is always there to come to
the rescue (medium):
(4)
and OPEC still can’t get its act together (medium):
Bottom
line: despite a more optimistic view of the US economy’s growth prospects,
stocks remain overvalued. That said,
current investor euphoria suggests that equity prices are likely going
higher. So my recommendation to take some
profits and sell losers is going to be wrong, at least for a while. However, it makes no sense to me to reverse
my prior actions simply because overvalued securities are going to get even
more overvalued. But it will be
uncomfortable. If I were a trader (which
I am not), I might buy an equity Market ETF, using a very tight stop. But I would under no circumstances buy stocks
on the thesis that ‘this time is different’ and stocks are going to sustain some
new higher level valuation. I am much
better off being wrong in the short term than being wrong in the long term.
The
bull giveth, the bear taketh away (medium):
My
thought for the day: there is no arbitrary limit to how high a stock can go so
long as the ‘thesis’ for owning it remains intact. The problem is that I am never going to know
when that the ‘thesis’ has changed until it is too late. In addition, even if the ‘thesis’ does remain
intact, valuations don’t. That is why I developed
the Valuation Model to force me to take some money off the table when a stock
hits its historical valuation high. By
only Selling Half, I am still getting to ride the trend. And when stocks, in general, get caught in
mean reversal process, it creates the opportunity to buy back the half that I originally
sold at much lower prices.
Investing for Survival
Avoiding
group think.
News on Stocks in Our Portfolios
·
Revenue of $949.3M
(+1.2% Y/Y) beats by $22.66M
·
Revenue of C$6.75B
(+10.3% Y/Y) beats by C$1.83B.
Economics
This Week’s Data
The
November Dallas Fed manufacturing index came in at 8.8 versus the October
reading of 6.7.
The second
estimate of third quarter GDP was reported at up 3.2% versus expectations of up
3.1%; corporate profits rose 5.2% versus the prior reading of down 1.7%.
Other
Politics
Domestic
For the
optimists (medium):
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
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