The Morning Call
11/28/17
The
Market
Technical
Yesterday, the
indices (DJIA 23580, S&P 2601) turned in a mixed day (Dow up, S&P
down). Volume was up, but off a short
and calm trading day on Friday. Breadth
has been improving but not to the extent that I would have thought given the
pin action. Nonetheless, the bottom line
is that both of the Averages remain above their 100 and 200 day moving averages
and are in uptrends across all time frames---with the assumption being that
stock prices are going higher.
The VIX (9.9)
was up 2 ½%, managing to close right on the lower boundary of its long term
trading range, stopping the clock on its recent break. However, it finished below its 100 day moving
average (now resistance) and its 200 day moving average (now resistance). It remains on the brink of testing the July
low, again.
The long
Treasury was down fractionally, but remained above its 100 day moving average (now
support), above its 200 day moving average (now support) and above the lower
boundaries of its very short term uptrend, short term trading range and long
term uptrend. Other area of the long
bond complex continue to perform poorly, suggesting a safety concern.
The dollar was
up slightly, but ended below its 100 and 200 day moving averages (now
resistance) and solidly within a short term downtrend---not reflective of economic
strength or confidence in the US.
Gold
continues to inch higher, closing for above its 100 day moving average for the
third day---so maybe it is starting to break the gravitational hold of that MA. I am still going to wait a couple of days
before making that call. It remained
above its 200 moving average (now support) and in a short term uptrend. Again not indicative of economic strength or
higher rates.
Bottom line: hasn’t
changed---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.
The technical assumption has to be that stocks are going higher.
Trading in UUP,
GLD and TLT are back in sync with themselves (sluggish economy, weak interest
rates) but out of kilter with the VIX and stocks. I remain confused and uncomfortable with the
overall technical picture.
Fundamental
Headlines
Yesterday’s
economic data was mixed---October new home sales were gangbusters while the
November Dallas Fed manufacturing index was disappointing. However, new home sales are a primary
indicator, so the overall weight is to the positive.
Overseas,
October Chinese industrial profits were below estimates.
This
will be a busy month for fiscal/monetary news.
Congress has 15 legislative days left until year end and a very full
agenda. Here is what it faces besides
tax reform (medium):
As
of this morning (medium):
Deficits
matter (medium):
On
schedule today is the testimony of Fed chair nominee Powell before the senate
banking committee. The text of his
opening remarks was released last night after the Market close. Bottom line, nothing new in terms of monetary
policy implications. That said, even if
he was planning on blowing the place up, I am not sure his remarks or
subsequent comments would be different from what we will get.
The
Yellen put (medium):
Bottom
line: those new home sales numbers were
stunning assuming that there is no funny business in their computation. Another sign that the economy is gaining a
little life. Hope springs eternal that
tax reform will be enacted; though given its current form, I can’t fathom why
it generates an ounce of enthusiasm.
Nonetheless, the economy has some momentum; the Market clearly has
momentum. So for the moment any
cognitive dissonance resulting from the divergent behavior in bonds, the dollar
and gold, an exploding national debt, a $4 trillion Fed balance sheet and
equity valuations that are at historically elevated levels remains a
minimal.
As long as that
continues, in my opinion, investors should be building cash by selling a
portion of their winners and all of their losers. As a reminder, my portfolios are ~50% in cash;
and I sleep very well at night.
The
perfect storm (medium):
Investing for Survival
Building
a nest egg without taking too much risk
News on Stocks in Our Portfolios
Revenue of C$6.81B (+0.9% Y/Y) misses by C$240M.
Economics
This Week’s Data
October
new home sales rose 6.2% versus expectations of down 7.0%.
And (short):
The
November Dallas Fed manufacturing index was reported at 19.4 versus estimates
of 24.5.
The October US
trade deficit was $68.3 billion versus forecasts of $64.8 billion.
Other
I
haven’t spent much time on bitcoin. Here
is a good starter (medium):
An
update on Brexit and the capital structure of the UK banks (medium):
Chinese
regulators continue to push the unwind of that country’s credit bubble
(medium):
Politics
Domestic
International War Against Radical
Islam
A
deal between Syria and Israel? (medium):
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