The Morning Call
12/1/16
The
Market
Technical
The indices
(DJIA 19123, S&P 2198) again traded in a narrow range yesterday (Dow up,
S&P down), with the S&P giving up the 2200 level. Volume rose markedly; breadth weakened but remained
at very overbought levels. The VIX rose
3%, but still finished 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 {18093-20153}, [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 {2108-2452},
[d] in an intermediate uptrend {1993-2595} and [e] in a long term uptrend {881-2419}.
The long
Treasury took a big hit (-1.5%) on big volume, closing 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 also got smacked
(-1.5%), ending below its 100 day moving average (now resistance), below its
200 day moving average (now resistance), below another Fibonacci retracement
level and below the lower boundary of its short term downtrend.
The dollar popped,
finishing back above the upper boundary of its former short term trading range
(it had reset on Monday, then fell back below it Tuesday), suggesting that the
reset to an uptrend was valid. However, I
am waiting one more day to make that call.
Bottom line: based
on the trading patterns of the last two weeks (i.e. stocks up, the dollar up,
bonds down, gold down), everything made sense yesterday except stocks. Of course, the Averages remain overbought
which could easily explain their divergence from the prior pattern---though the
S&P closing below the 2200 level is a little concerning. Still barring some extreme whackage, I continue
to believe that the indices will at least make a stab at challenging their long
term uptrends.
Fundamental
Headlines
Yesterday’s
US economic data was mixed: the November ADP private payrolls report was well
above estimates, the November Chicago PMI smoked expectations, October personal
income beat forecasts but personal spending fell short of projections, weekly
mortgage and purchase applications and October pending home sales were all disappointing.
The
Fed released its latest Beige Book.
While still positive, it was less so than the prior edition---a little
surprising given the dataflow of the last month. Also of note, several regional banks pointed
to the rising dollar as a drag on economic activity in their areas.
Overseas,
November EU inflation rose but is still increasing below the 2% goal.
***overnight,
November Chinese Markit manufacturing and services PMI’s came in better than
expected; the November EU Markit manufacturing PMI was in line; the November UK
Markit manufacturing PMI was below estimates.
In other news,
ahead of this weekend’s crucial Italian referendum, the ECB reported that one
third of all EU nonperforming loans are held by Italian banks---which could be
adversely impacted by the outcome of this vote.
In addition, three major UK banks failed the latest ‘stress test’.
Of
course, the main headline of the day was the OPEC agreement on a production cut
(OK, I was wrong)---the most important aspect of which was the usual
obfuscation of the facts (but not so wrong).
There was a lot of sleight of hand in the math of the ‘cut’, suggesting
these guys haven’t changed their stripes.
So it is not unreasonable to assume that there will almost assured be cheating. Plus any meaningful sustained increase in the
price of oil will likely bring out more supply from non OPEC producers.
The
OPEC production cut math (short):
The
Russian production cut math (short):
Also,
two of new Trump nominees (Treasury and Commerce) were on the air waves
suggesting policy changes (lower taxes, lower regulation) that would be
beneficial to the economy. Not to be
repetitious, nothing has been done yet; however, the more players that are on
record committing to change, the more likely it is to occur.
Bottom line: it
would appear that lower oil prices are now in the rear view mirror, at least
for a time. That should give a boost to
investor psychology. In addition, the more
we get comments like the aforementioned, the higher the odds rise that many of the
promised reforms will get enacted in one form or another. I am not saying that a new millinium has
arrived. But I am saying that the more
steps Trump takes in the direction of fulfilling his promises (like appointing
heavy weights to help carry the load) the more likely they are to occur.
Having said
that, I want to again distinguish between the economy and equity
valuation. ‘ ….if I assume that the ‘Trump revolution’ will lead to a higher
secular growth rate of the economy, I can’t get equity valuations even close to
current levels. 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.’
A December to
remember (medium):
My
thought for the day: an investor who has all the answers doesn’t understand all
the questions. As you know, I spend a
great deal of time worrying about all the things that I don’t know. In doing so, it keeps me (1) from me from
being in a position to be 100% wrong, (2) diversified, (3) focused on doing my
homework, (4) willing to change my mind if the evidence suggests it, (5)
learning from my mistakes.
Investing for Survival
Don’t
try to get rich twice.
News on Stocks in Our Portfolios
·
Revenue of $553M
(+2.8% Y/Y) beats by $18.92M.
-
BlackRock (NYSE:BLK)
declares $2.29/share quarterly dividend ,
in line with previous.
Economics
This Week’s Data
The
November Chicago PMI came in at 57.6 versus expectations of 52.0.
October
pending home sales rose 0.1% versus estimates of +0.8%.
Weekly jobless
claims rose 17,000 versus forecasts of up 2,000.
Other
The
Atlanta Fed slashes its fourth quarter GDP estimate (short):
Update
on big four economic indicators.
The
latest NY Fed quarterly report on household debt and credit (medium):
Politics
Domestic
Thursday morning
humor.
International War Against Radical
Islam
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