Thursday, April 6, 2017

The Morning Call--What a difference a day makes

The Morning Call


The Market

The indices (DJIA 20648, S&P 2352) staged another big intraday reversal yesterday.  Only this time instead of initially trading down (up) big and closing flat or near flat on the day, they advanced smartly then ended down noticeably.  In the process, the broke above the upper boundary of their short term downtrends, then closed below them. Volume rose; breadth deteriorated.  The VIX (12.9) rose 9 ½ %, ending above the lower boundary of its very short term uptrend, back above its 100 day moving average (now resistance; if it remains there through the close on Friday, it will revert to support), below its 200 day moving average (now resistance) and in a short term downtrend.  Complacency remains an issue.

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 {19246-21635}, [c] in an intermediate term uptrend {11891-24743} 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 {2250-2583}, [d] in an intermediate uptrend {2082-2686} and [e] in a long term uptrend {905-2591}.

The long Treasury was up fractionally, remaining above its 100 day moving average (now support), below its 200 day moving average (now resistance), finishing back near a minor resistance level, in a very short term downtrend and in a short term trading range.

GLD was unchanged, closing above its 100 day moving average (now support), below but nearing its 200 day moving average (now resistance) and within a short term downtrend. 

The dollar was flat, ending below its 100 day moving average (now resistance), above but near its 200 day moving averages (now support), in a very short term downtrend and in a short term uptrend.

Bottom line: technically speaking, I think we have to look at yesterday’s dramatic turnaround within the context of the numerous intraday reversals that have occurred recently.  Meaning that investors have been demonstrating manic behavior brought on by rising uncertainty.  Buyers or sellers are still there, they are just more tentative in committing funds.  At the moment, I don’t think that this suggests anything major in a directional sense; though the longer the current very short term downtrend continues, the stronger it becomes.  As always, follow through is the key.
            The pin action in bonds, gold and the dollar was erratic and provided little directional guidance.



            The news flow yesterday was bit schizophrenic which clearly got reflected in equity prices.  The economic data started out strong with a surprisingly upbeat ADP private payroll report, then cooled dramatically later in the day as both the March services PMI and the ISM nonmanufacturing index came in below estimates.

            ***overnight, the March Chinese services and composite PMI’s hit a six month low.

            Then the ruling class took over and once again proved just how ugly policy making can be.  First of all, it became obvious that all the happy talk about being close to a compromise on healthcare was just that---happy talk.  The various GOP factions appear as far apart as ever.  Then Speaker Ryan made clear that the house, the senate and the president all had different ideas on accomplishing tax reform and that it would take considerable time to resolve those differences.

            Then the Fed released the minutes from the latest FOMC meeting which carried a much more hawkish narrative than was conveyed in the Fed statement following that meeting and the numerous contradictory/confusing Fed official’s comments last week.  It seems more rate hikes and a quicker unwinding of the Fed balance sheet are much more likely than investors had thought (dreamed/hoped).  Further, stocks were described generously valued---quite an acknowledgment from the perpetrator of one of the most egregious mispricing of assets in history.  To be clear, I don’t read that as the assumption of any responsibility for that overvaluation or the recognition that any monetary policy reversal could have as devastating impact on the Market as I expect.  I do believe that it demonstrates how completely out of touch with reality this group is and clearly raises the odds of the risk that monetary tightening could begin just as the economy is softening.

***overnight, Draghi stated that there wasn’t sufficient evidence of economic improvement to warrant a change in monetary policy which (1) is a stunning statement in and of itself since the EU data has been much better of late and (2) puts the ECB and Fed in opposition policy wise.  That said, Draghi’s comments were immediately contradicted by the head of the Bundesbank (sound familiar?)

In addition, it appears Greece and the EU are near an agreement for the next round of bail out funds

            Bottom line: the Trumpflation trade took a body blow yesterday; though it could recover with a strong nonfarm payrolls number on Friday.  So all is not lost for the bulls.  The Fed’s minutes suggested that it could once again confirm its near perfect record of being 100% wrong on the economy and the timing of its policy moves.  As you know, my thesis all along has been that the Fed would be the primary agent of mean reversal.  Still it will likely have to follow through with this folly in order to ignite the process and that hasn’t occurred, yet.  All that said, this is a single day of news flow, so it would be foolish to start drawing long term conclusions about the economy or the Market.
            What could possibly go wrong? (medium and a must read):

            Will we see a melt up? (short):

            My thought for the day: just because you disagree with someone (an idea, an opinion on a stock) doesn’t mean that it is wrong.

       Investing for Survival
            Five financial myths to ignore.

    News on Stocks in Our Portfolios
Automatic Data Processing (NASDAQ:ADP) declares $0.57/share quarterly dividend, in line with previous.


   This Week’s Data

            The March services PMI was reported at 52.8 versus the February reading of 53.8.

            The March ISM nonmanufacturing index came in 55.2 versus expectations of 57.0.

            Weekly jobless claims fell 25,000 versus estimates of an 8,000 decline.


            More on student debt (medium):



  International War Against Radical Islam

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