Friday, April 28, 2017

The Morning Call--Better earnings pick up the slack

The Morning Call

4/28/17

The Market
         
    Technical

The indices (DJIA 20975, S&P 2387) turned in another muted performance as they work off the excesses of the Monday/Tuesday moonshot---which, again, is not surprising after two huge up days.  Volume fell; breadth was mixed.  The VIX (10.3) was down 4 ¼ %, closing below its 100 day moving average (now resistance), below its 200 day moving average for a fourth day (reverting to resistance) and closed right on the lower boundaries of its short and intermediate term trading ranges. 

The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {19458-21635}, [c] in an intermediate term uptrend {11994-24843} and [d] in a long term uptrend {5751-23390}.

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 {2275-2608}, [d] in an intermediate uptrend {2098-2702} and [e] in a long term uptrend {905-2591}.

The long Treasury fell fractionally, ending above its 100 day moving average (now support), below its 200 day moving average (now resistance), in a very short term downtrend and in a short term trading range.  It seems to have found support right on the upper boundary of the former trading range dating back to November 2016.
               
GLD declined, closing above its 100 day moving average (now support), above its 200 day moving average (now support), in a very short term uptrend and in a short term downtrend. 

The dollar was up, ending back above its 100 day moving average voiding Tuesday’s break (now support), below its 200 day moving averages (now resistance), below the upper boundary of its very short term downtrend and in a short term uptrend.

Bottom line: the indices continued to rest after the strong Monday/Tuesday performance, which is normal and suggests nothing directionally.  Their upside is now being marked by their former highs [21228/2402] and the upper boundaries of their long term uptrends while support on the downside exists at their 100 and 200 day moving averages and the lower boundaries of their short term uptrends. 

While I would expect a challenge of the old highs, the big question in my mind is, will those gap openings which I have mentioned get closed as part of a near term correction (which would clearly be the more positive alternative) or will the Averages continue to rise and it occur on the way down following a Market top?

    Fundamental

       Headlines

            Not a good day for the economic stats: March durable goods orders, weekly jobless claims, March pending home sales and the April Kansas City Fed manufacturing index  came in below estimates; and while the March trade deficit was below consensus but largely the result of declining exports and imports.  Nothing overseas.

            ***overnight, first quarter UK and French GDP growth were below estimates; April EU inflation rose to 1.9%, just shy of the ECB’s 2% goal.

            On the other hand, earnings season is coming in better than many anticipated, continuing the curious dichotomy of the whole economy underperforming while corporate profits over perform.  While part of this can be explained by accounting, sooner or later one of these trends has to reverse.       

            A potential source of an improving economy is the implementation of the Trump/GOP fiscal program which continues to face problems.  The tax plan introduced on Wednesday has been met with some skepticism.  

Five facts about tax reform (medium):

Plus, the hope that the vote on government funding today and an imminent presentation of a new repeal and replace bill are now caught in Washington meat grinder, to wit, the Dems are threatening to vote against government funding extension if GOP passes repeal and replace.  What a clusterf**k (medium):

                Trump calls bulls**t of dems (short):

                ***overnight, but still repeal and replace failed/delayed for a second time (short):

Bottom line: this earnings season is coming in better than expected which is giving investors something to cling to as the ruling class continues to do its best to do nothing.  In addition, Trump is providing positive impetus as his deregulation initiative will almost surely add to the long term secular growth rate of the economy. 

The problem is short term.  If the economy is losing is post-election-improved-sentiment boost and Trump/GOP disappoint in the delivery of their fiscal policies, that could leave investors searching for new reasons to justify current  high valuations.  Again, there are a number of reasons to be positive about improved economic growth.  The issue is the order of magnitude.

            How the Market responds to tax cuts (medium):

            For the more sanguine: overvalued but not a bubble (medium):

            Global liquidity and stock prices (medium):

            The staying power of the current Market (medium):

            Is the increasing popularity of ETF’s becoming a problem? (medium):
            My thought for the day comes from Paul Tudor Jones: ‘I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.’
       Investing for Survival
   
            Financial insecurity.

    News on Stocks in Our Portfolios

Coca-Cola (NYSE:KO) declares $0.37/share quarterly dividend, in line with previous. 

EOG Resources, Inc. (NYSE:EOG) declares $0.1675/share quarterly dividend, in line with previous.

Microsoft (NASDAQ:MSFT): Q3 EPS of $0.73 beats by $0.03.
Revenue of $23.56B (+6.3% Y/Y) misses by $60M.

V.F. (NYSE:VFC): Q1 EPS of $0.55 in-line.
Revenue of $2.58B (-1.9% Y/Y) misses by $140M.

Exxon Mobil (NYSE:XOM): Q1 EPS of $0.95 beats by $0.08.
Revenue of $63.3B (+30.0% Y/Y) misses by $1.48B.


Economics

   This Week’s Data

            March pending homes fell 0.8% versus expectations of -0.5%.

            The April Kansas City Fed manufacturing index came in at 7 versus March’s reading of 20.

                        First quarter GDP rose 0.7% versus estimates of up 1.1%; the price index was up 2.3% versus consensus of up 2.0%; and the employment cost index was up 0.8% versus forecasts of up 0.6%

   Other

            The latest from Van Hoisington (a little long but a must read):

            Another rate hike in June? (medium):

            More on auto loans (medium):

Politics

  Domestic

Reagan on campus protests (short):

The staggering administrative bloat at universities (short):

  International War Against Radical Islam


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