The Morning Call
5/18/17
The
Market
Technical
The indices
(DJIA 20606, S&P 2357) got blasted yesterday. They both (1) closed those gaps on the downside,
(2) but had gap openings which creates a flipside equation, i.e. they need to
be filled; the issue is the timeframe it occurs within, and (3) are nearing
their 100 day moving averages. Volume rose; breadth weakened further. Nonetheless, both remain above their 100 and
200 day moving averages and the lower boundaries of uptrends across all major
time frames.
The VIX (15.6) was
up 46 % (yes, 46%). But like the
indices, while it closed the overhead gap, it created one on the downside. It also blew through both its 100 (if it
remains there through the close on Friday, it will reset to support) and 200
(if it remains there through the close next Monday) day moving averages.
Likewise the
trading in TLT (up), the dollar (down) and gold (up) close gaps but created new
ones. While the long Treasury’s pin
action made no challenges to resistance/support levels, (1) the dollar’s 200
day moving average reverted to resistance and if it remains at current level at
the close today, it’s short term trend will reset from an uptrend to a trading
range and (2) GLD traded above its 200 day moving average [if it remains there
through the close on Monday, it will revert to support].
Bottom line: there are always a lot of issues after such a
sharp price reversal as we had yesterday.
First, as always is follow through.
Second, the huge gap openings need to be filled; the question is
time. Third, given the lack of
volatility of late, yesterday’s move may seem unusual; but in historical
context, there is nothing unusual at all.
Fourth, at the moment, there is little danger of a trend reversal.
What
the Market did during Watergate (short):
You
don’t know what a correction is (short):
Fundamental
Headlines
Only
one minor US datapoint yesterday: weekly mortgage and purchase applications
fell. Overseas, the April EU inflation
rate rose and is near the ECB’s stated objective.
***overseas,
first quarter Japanese GDP rose 2.2% (better than forecast) and April UK retail
sales were up more than anticipated.
The
story remains an embattled Trump. While
you wouldn’t know it by the pin action, the level of hysterical rhetoric actually
declined somewhat during the day. Though
events seem to be occurring minute by minute---the most important now is the
appointment of a special prosecutor for the Russia/Trump connection probe. That will likely take some of the heat out of
this issue, at least for a time, since no one can complain that nothing is
being done. Plus, the new prosecutor is
well thought of on both sides of the aisle.
On the other hand, remembering past special prosecutors’ reign, it could
prolong the agony.
Of course, that
doesn’t mean that Trump has seen the last attack on his actions. Usually, just when you think things can’t get
any worse, they do. Whatever happens,
the most important take away remains how much will these issues delay or
destroy the Trump/GOP fiscal agenda.
Almost certainly, it will likely push any passage of repeal and replace
and tax reform into 2018; and depending on how these accusations are resolved
(i.e. whether or not Trump is found guilty/complicit), they may never get
enacted. With that pleasant thought, the
pressure is clearly off to make any adjustments to our long term secular
economic growth rate assumptions based on the impact of the Trump/GOP fiscal
plan.
And speaking of
things not getting any worse (medium):
My thought for the day: in the game of Texas
Hold'um when the right hand
comes along you can be "all
in" and bet all of your money. The risk with
this, of course, is that if another player calls you and you lose – you are
busted. In investing when you have the right set of environmental
ingredients in your favor such as an extreme oversold market condition, panic
and fear from investors, deep discounts in valuations, etc. those are times to
invest more heavily into equities as the risk of
loss is outweighed by the potential for reward because the hand you are holding is a strong
one.
The single biggest mistake that investors make
today is they continue to be "all in" on every hand regardless of
market conditions. Risk is
only a function of how much money you will lose when, not if, you are wrong.
Investing for Survival
Fiduciary
responsibility.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Weekly
jobless claims fell 4,000 versus expectations of a rise 4,000.
The
May Philadelphia Fed manufacturing index came in at 38.8 versus estimates of
19.6.
Other
Update
on consumer credit (medium):
Politics
Domestic
Quote of the day
(short):
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
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