The Morning Call
3/2/17
The
Market
Technical
The indices
(DJIA 21115, S&P 2395) staged a moon shot, following Trump’s speech and its
lack of specificity. Volume spiked,
remaining at a high level; breadth was strong.
The VIX (12.5) fell 3 % (a very modest decline for a 300 point up day), finishing
below its 100 and 200 day moving averages (now resistance), in a short term
downtrend and in the trading range dating back to mid-January. It continues
to signal complacency at a near record high level.
The Dow ended
[a] above its 100 day moving average, now support, [b] above its 200 day moving
average, now support, [c] in a short term uptrend {18863-21182}, [c] in an
intermediate term uptrend {11815-24667} and [d] in a long term uptrend {5751-23298}.
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 {2206-2540},
[d] in an intermediate uptrend {2055-2659} and [e] in a long term uptrend
{881-2561}.
The long
Treasury dropped 1 ¾ %, slipping all the way to the lower boundary of the
developing pennant formation; how it resolves this pattern should give us a
hint on the bond guys’ attitude toward Trumpflation (a stronger economy, higher
interest rates and higher inflation). It
remained in a very short term downtrend, near the lower boundary of its short
term trading range and below the 100 day moving average (now resistance),
falling further below its 200 day moving average (now resistance).
And:
GLD declined, closing
within a very short term uptrend and above its 100 day moving average (now
support). However, it remained below,
but near, its 200 day moving average (now resistance) and within a short term
downtrend.
The dollar was
up almost 1%, ending above its 100 day moving average (now support), its 200
day moving averages (now support), in a short term uptrend and is attempting to
establish a very short term uptrend.
Bottom line: the
Averages continue to tell us that they are going to challenge the upper
boundaries of their long term uptrends. Sit
back and enjoy.
Mom
and pop are all over this Market (medium):
Something
amiss (short):
Update
on NYSE margin debt (medium):
Fundamental
Headlines
Yesterday
was another active one for data, this time mixed: weekly mortgage and purchase
applications, January personal income and the February ISM manufacturing index
were above consensus while January personal spending, the February Markit PMI
and January construction spending were below.
In addition, the Fed released its latest Beige Book which read pretty
much as expected---the economy modestly improving.
Meanwhile,
the Atlanta Fed (joined by some big names on the Street) lowered their first
quarter GDP growth estimate (medium):
Overseas,
the numbers were also mixed: the
February Chinese manufacturing PMI rose from the prior month while the services
PMI declined; the February EU manufacturing PMI was up versus January while the
UK manufacturing PMI was down.
Of
course, the Market was the news yesterday, driven as it was by Trump’s speech
Tuesday night containing lots of hope but little detail and delivered in a more
presidential tone.
Bottom
line: I have no doubt that changes for the better will be forthcoming as Trump
and the GOP congress work their way through the Obamacare reform, tax reform
and infrastructure spending. The
question is their order of impact; and that is something that we don’t know
because there is so much that we don’t know, like even the broadest outline on either
healthcare reform or infrastructure spending.
True we have a
decent idea about some aspects of tax reform.
But the border tax issue hasn’t been resolved; and whether or not it is included,
there are problems either way. If it isn’t,
there is no tax increase offset; meaning the deficit skyrockets which is politically
unpalatable to many in the GOP. If it is
included, then expect a sharp price increase in large segments of the consumer
products industry---not a plus for consumer spending which itself carries a
political liability.
The point is not
that conditions are negative; no, they are increasingly upbeat. The issues are (1) how upbeat can they be until the government
deficit and debt are addressed and (2) what does one pay for any improvement,
taking into account that stocks are richly valued by multiple measures.
But
David Stockman thinks that even I am smoking dope (medium):
The
stealth rotation (medium):
Ed
Yardini on Buffett and current equity valuations (short):
My
thought for the day: know thyself.
Studies show that 75% of all investors think that they are above
average. Those same studies show that
the average investor grossly underperforms the Market. Do the math.
Subscriber Alert
The
price of General Dynamics (GD-$194) has risen above the lower boundary of its
Sell Half Range. Accordingly, the
Dividend Growth Portfolio is Selling Half of its current position.
Investing for Survival
The
biggest myths in investing #5:
News on Stocks in Our Portfolios
General Dynamics (NYSE:GD) declares $0.84/share quarterly dividend, 10.5%
increase from prior dividend of
$0.76.
Economics
This Week’s Data
The
February Markit manufacturing PMI was reported at 54.1 versus expectations of
55.0.
The
February ISM manufacturing index came in at 57.7 versus estimates of 56.4.
January
construction spending fell 1.0% versus forecasts of a 0.5% increase.
Weekly
jobless claims fell 19,000 versus an anticipated rise of 1,000.
Other
Creative
destruction in the US (short):
The
Bank of International Settlements has now conducted a study on the relationship
of private debt to GDP and the subsequent rate of economic growth. Not surprisingly, it comes to the same
conclusion that Reinhold and Rogoff did regarding government debt---advanced
levels of debt are bad for economic growth.
Guess where we are today? (medium and a must read):
As
a follow up, how will raising interest rates cause the consumer to lead the US
to 2%+ GDP growth? (short):
The
euro breakup risk is rising (short):
Politics
Domestic
International War Against Radical
Islam
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