The Morning Call
8/18/17
The
Market
Technical
The indices
(DJIA 21750, S&P 2430) had another volatile day but was monkey hammered. Volume rose; breadth was weaker. While yesterday’s pin action was only a
single day, the upward momentum of the Averages is now being challenged. The S&P closed right on the lower boundary
of its short term uptrend and the 100 day moving average (~2414) is close by. However, the Dow remains well above its corresponding
levels. So it is too soon to be getting
squirrelly about the Market. As always
follow through is key,
The VIX (15.5) spiked
32%, closing back above its 100 day moving average, negating Wednesday’s break [now
support] and above its 200 day moving average [now support]. It also finished above the upper boundary of
its short term downtrend; if it remains there through the close on Monday, it
will reset to a trading range. This pin action clearly provides substance to my
open questions as to whether the VIX made or is making some kind of bottom extending
back to late July and if I was premature resetting the intermediate term from
trading range to downtrend.
The long
Treasury rose on volume, ending above its 100 and 200 day moving averages (both
support), the lower boundaries of its short term trading range and its long
term uptrend and has now made a third short term higher high. That is a lot of support.
The dollar was
up slightly, but still closed in a short term downtrend, below its 100 and 200
day moving averages and did not make a new higher high.
GLD moved up again, finishing above the lower
boundary of its very short term uptrend and its 100 and 200 day moving averages
(both support) and is now back in the proximity to the upper boundary of its
short term trading range.
Bottom line: the
indices had a rough day. Importantly,
the S&P is now at key technical support levels. If it successfully challenges those marks,
that may create the first sign of cognitive dissonance since last November. On the other hand, the Dow is some distance
away from a similar challenge. Plus the ‘buy
the dip’ crowd can’t be far away. Until
they are no longer able to sustain the indices’ upward momentum, it is simply
too early to assume that there is any danger of a major technical breakdown.
Fundamental
Headlines
Yesterday’s
economic data was once again mixed: weekly jobless claims declined more than
expected and the Philly Fed manufacturing index was stronger than forecast
while July industrial production (primary indicator) was below estimates and
the July leading economic indicators (primary indicator) were in line.
Overseas, the
news was a bit more positive. July UK
retail sales were stronger than anticipated and the ECB released the minutes of
its last meeting which confirmed Wednesday’s rumor that it is not considering a
change of policy in the near future.
Once
again, politics held the headlines: (1) rumors circulated that Gary Cohn was
resigning, later denied, (2) Senator Coker, a Trump supporter, made a stinging
rebuke of Trump and (3) the Donald’s new infrastructure council collapsed. So the Trump ship continues to list. But as I noted yesterday, the downside to
this political mayhem is gridlock and that historically has been the good news
scenario, economically speaking. While
the ruling class’s version of Days of Our Life is full of intrigue and tragedy
and makes for great entertainment, it is unlikely to impact the economy or the
underlying fundamentals of the Market.
Bottom
line: I have been contending for some time that (1) stocks are grossly
overvalued, (2) investors were in a state of extreme complacency [as measured
by the VIX making all-time lows] but (3) that sooner or later there would be a
spark that would reintroduce investors to
reality. Last week, even though I thought
that the North Korean/US standoff would go nowhere, I wondered if it could
serve as that spark. It didn’t. This week, even though I believe that Trump’s
failings will not lead to anything worse than economic gridlock, I wonder if
that could act as the spark.
To be sure,
there were extreme risks in both cases---some idiot lobbing a missile or an
intensification of violent civil strife.
But my point is that while Fair Value (as calculated by our Model) reflecting
either case may decline, the corresponding move by equity prices to adjust to
that decline in Fair Value would be much different from current levels versus
if they were at or near current Fair Value.
BankAmerica
on equity valuations (short):
Update
on dividends (short):
http://politicalcalculations.blogspot.com/2017/08/the-pace-of-dividend-cuts-midway.html#.WZXaNlGGM2w
My
thought for the day: only losers blame others for their investment
mistakes. No one puts a gun their head
to buy a stock. Ignoring their own
shortcomings and failing to take responsibility of their actions only
guarantees that they will repeat their mistakes. We all make errors; but by
developing a firm investing discipline, the investor will be in a much better
position to analyze the reasons for an undesirable outcome and either adjust
the discipline to avoid future occurrences or recognize the role that luck
plays in the investment process.
Investing for Survival
The
fog of war.
News on Stocks in Our Portfolios
Hormel Foods (HRL -1.4%) earlier today agreed to acquire Fontanini Italian
Meats and Sausages from privately held Capitol Wholesale Meats for $425M
Economics
This Week’s Data
July
industrial production rose 0.2% versus estimates of +0.3%.
The
July economic indicators rose 0.3%, in line.
Other
More
on consumer debt (medium):
Politics
Domestic
Victor Davis
Hanson on the post Charlottesville moral outrage (medium):
International War Against Radical
Islam
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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