The Morning Call
12/13/16
The
Market
Technical
The indices
(DJIA 19796, S&P 2256) diverged again yesterday (Dow up, S&P down); and
again on big volume and improving breadth---as long as these measures remain
strong, I don’t think that there is a lot to read into the Averages disparate
behavior. The VIX (12.6) jumped 7 1/2 %,
but remained below its 200 day moving average (now resistance) below its 100
day moving average (now resistance) and within a short term downtrend. However,
it did close right on the upper boundary of that very short term downtrend. A finish above that boundary would indicate
the potential loss of downside momentum.
It remains near the lower boundaries
of its intermediate term trading range (10.3) and long term trading range (9.8)
both of which were set back in 2006.
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 {18176-20226}, [c] in
an intermediate term uptrend {11627-24477} and [d] in a long term uptrend {5675-20165}.
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 {2120-2464},
[d] in an intermediate uptrend {2000-2602} and [e] in a long term uptrend {881-2419}.
The long
Treasury (117.7) rose slightly, but still ended below its 100 day moving
average (now resistance), below its 200 day moving average (now resistance),
below a key Fibonacci level and in a very short term downtrend. However, it bounced off the lower boundary of
its short term trading range, avoiding for the moment a challenge of that level
(117.3).
GLD (110) was up
fractionally, but still closed below its 100 day moving average (now
resistance), below its 200 day moving average (now resistance), below the lower
boundary of its short term downtrend and back below a key Fibonacci level. There is not much stopping it from going
lower.
The dollar fell back
below the upper boundary of its short term trading range (for the third time),
keeping us all in suspense about whether it can successfully challenge that
boundary. Failure to do so would be a
plus for US companies with global operations.
Bottom line: the
upside momentum paused yesterday; but not by much. The S&P was off only slightly while volume
and breadth remained strong. I continue to believe that there is more upside at
least through year end, driven by seasonal factors along with institutional
investors being underinvested and all investors being unwilling to sell until
next year because of the anticipated changes in the tax code. However, I also believe that stocks will not
stay as overbought as they are forever.
Once year end institutional window dressing and the Santa Claus rally ends
and a new tax year begins, money flows are apt to change. Whether the indices can reach the upper boundaries
of their long term uptrends in the meantime is the big question. If they do, I still
believe that those challenges will be unsuccessful.
Fundamental
Headlines
Only
one US datapoint yesterday and that was a greatly increased November US budget
deficit. Not a big plus for bonds or for
those anticipating a big increase in government infrastructure spending.
Overseas:
(1)
OPEC agreed on production cuts. As you know, I remain firmly in the skeptics’
camp based primarily on past behavior,
(2)
the ECB rejected
a request from Monte Paschi for more time to arrange private financing; however,
the Italian treasury said that it would help with the recap. I refer you back to last week’s link that
outlined the Italian government’s options to assist this bank and the problems
associated with each alternative. The
point being that it is not as simple as the ‘government helping with the recap’. I am not suggesting for a second that I know
what is going to happen, just that whatever does has consequences that are not
insignificant.
***overnight,
November Chinese retail sales and industrial output came in above expectations
while fixed asset investment was in line.
However:
In addition,
November UK inflation was higher than forecast.
Italy’s largest bank said in would lay off 14,000 workers and raise E13
billion in new capital.
Bottom line:
seasonal factors (Santa Claus rally) are adding fuel to the enthusiasm spawned
by the Trump election/GOP sweep, which probably means everything will be coming
up roses until, at least, the turn of the year.
However, there
are problems out there that I don’t hear investors recognizing (and therefore
discounting), among them (1) the aforementioned solvency issue at Monte Paschi,
(2) potential trade issues resulting not only from the Donald’s threats on
NAFTA but also his sticking his finger in China’s eye which just happens to be
a major trading partner of ours, (3) a rising dollar negatively impacts foreign
operations of US companies, higher interest rates raise borrowing costs not
just for companies but also for consumers---think housing, (4) Trump’s promises
of deregulation versus his daily tweets attacking US companies, (5) Trump’s
cabinet nominees [Labor, EPA, State] are not getting high approval even within
the GOP. What happens to tax cuts and infrastructure
spending if Trump and congress get into a pissing match over those
nominees?
I say none of
this to diminish my initial upbeat take on the likely positive impact of a new
fiscal/regulatory regime. But I am
repeating that this is all ‘on the come’ which (1) doesn’t seem to be properly
considered in the current Market euphoria in which everything that Trump does is
an unmitigated positive [remember lower oil prices?] and (2) even if none of
those negatives occur, the resulting economic environment is already being more
than adequately discounted.
Mitch
McConnell pours cold water on Trump fiscal plan (medium):
You
may want to trade this rally, but stay with very liquid securities and maintain
very tight stops.
My
thought for the day: group think is when an investor feels compelled to accept
the commonly held thesis especially when that thesis is having a significant
impact on prices. Sometimes that thesis
is correct; sometimes it is not. The
point is, if you choose to join the crowd, be sure it is the result of your own
independent analysis not because you assume that they have it right.
Interest
rates, valuations and timeframes (medium):
This
is a good explanation about how to look at future returns in the stocks market;
however, I think that he maybe a little too optimistic on the specifics
(medium):
Six
things to consider as stocks hit new highs (medium):
Investing for Survival
The
best investors in the world are not special and neither are you.
News on Stocks in Our Portfolios
Boeing (NYSE:BA) declares $1.42/share quarterly dividend, 30.3% increase
from prior dividend of $1.09.
Economics
This Week’s Data
The
November US budget deficit was $136.7 billion versus October’s report of $44.2
billion.
The
November small business optimism index came in at 98.4 versus estimates of 96.5.
November
import prices fell 0.3% versus expectations of down 0.4%; export prices were
down 0.1% versus consensus of 0.0%.
Other
Update
on household net worth (short):
The
Philly Fed business conditions index (medium):
Politics
Domestic
Update on
climate change (medium):
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
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