The Morning Call
10/31/17
The
Market
Technical
The indices (DJIA
23348, S&P 2572) retreated from Friday’s strong performance. Volume was down, but still high; breadth was weak
but remains at a positive level. Both
remain above their 100 and 200 day moving averages and are in uptrends across
all time frames.
The VIX (10.4) was
up 7%---finishing below the upper boundary of its short term downtrend, below
100 day moving average (now resistance) voiding its recent break, back below
its 200 day moving average (now resistance) voiding its recent break, above the
lower boundary of its long term trading range and continues to develop a very
short term uptrend. It still looks like
the July low was the bottom.
The long
Treasury jumped 1%, ending below (but near) its 100 day moving average (now
resistance) and continues to develop a very short term downtrend, but back
above its 200 day moving average (now support) voiding its recent break, above
the lower boundaries of its short term trading range and long term uptrend.
The dollar dropped,
ending within in its short term downtrend and below 200 day moving average (now
resistance) and but above its 100 day moving average for the third day (reverting
to support) and continues to develop a very short term uptrend.
GLD rose, finishing
below its 100 day moving average but just barely (so I am now delaying its
reversion from support to resistance for another day), still above its 200 day moving
average (support) and the lower boundary of a short term uptrend.
Bottom line: long term, the indices remain
strong viz a viz their moving averages and uptrends across all timeframes.
Short term, they are above the resistance level marked by their August highs,
meaning that there is no resistance between current price levels and the upper
boundaries of the Averages long term uptrends.
Despite some recent churn, the technical assumption has to be that
stocks are going higher.
Trading in UUP,
GLD and TLT were again out of sync with themselves and the stock market. I remain uncomfortable with the overall
technical picture.
Fundamental
Headlines
Two
economic stats were reported yesterday and were mildly upbeat. September personal income and the PCE price
index were in line, while personal spending and the October Dallas Fed
manufacturing index were above estimate.
And
for the optimists (medium):
***overnight,
October EU inflation declined from 1.5% to 1.4%; this following the reports on
third quarter EU GDP growth that came in above estimates. These are goldilocks numbers; so why is
Draghi fighting reducing QE? You would
think that he would want to unwind QE so he that has policy ammunition for the
next economic downturn.
In
addition, October Chinese manufacturing and services PMI’s were both below
expectations; and the BOJ left rates and QE unchanged as the October inflation rate
declined.
This
will be a busy week for Market impacting news events:
(1)
the tax reform bill is supposed to be unveiled on
Wednesday. The latest rumors on what it
will or will not contain are [a] deductions of state and local taxes have been
left in and [b] the corporate tax cut will be phased in.
More:
(2)
Trump is set to announce his choice for Fed chairman
when Yellen’s term ends. At the moment,
Powell is the odds on favorite---he being the most dovish and hence the most likely
to keep QE around as long as possible.
That in turn would likely be a plus for stocks; and with the Donald continuously
commenting on how well the stock market has done since his election, it is no
surprise that Powell would be the leading contender.
(3)
the FOMC meets.
At the moment, the Market seems confident that policy will remain
unchanged, i.e. bond buying program slowing and a rate rise in December. However, remember the latest numbers out of
the Fed showed that there has been no reduction in bond buying. So any reference to the progress or lack
thereof in its stated schedule could be important and provide an indication of
the aggressiveness with which this plan is being pursued.
Bottom
line: it should be an interesting week as we get some additional clarification
of monetary and fiscal policy. My theses
haven’t changed: (1) the more tax reform enlarges the deficit/debt, the more
negative it will be for the potential increase in the long term secular growth
rate of the economy and (2) the longer QE lasts, the more painful will be the
unwind of asset mispricing and misallocation.
The
rising tide of earnings shenanigans (medium):
The
problem with negative forecasts (medium):
The
latest from David Einhorn (medium):
Why
bitcoin continues to gain advocates (medium):
My
thought for the day: Most of us are twice as biased as we think we are (four times if you
disagree with that statement).
Investing for Survival
Physics
applied to the Market.
News on Stocks in Our Portfolios
Revenue of $5.3B (+26.5% Y/Y) beats by $510M.
Revenue of $3.4B (+18.1% Y/Y) beats by $120M.
Hormel Foods (NYSE:HRL) announces that it acquired Columbus
Manufacturing from Arbor Investments for $850M.
Columbus is expected to help generate $300M in annual
sales.
The company says the strategic deal will help position it
as a total deli solutions provider and enhances its other strong deli brands
such as Hormel, Jennie-O, Applegate, and DiLusso.
Economics
This Week’s Data
The
October Dallas Fed manufacturing index was reported at 27.6 versus expectations
of 21.3.
Other
More
on student loans (medium):
Politics
Domestic
The
fragmentation of society (medium):
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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