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The Morning Call--Action Packed Week

|Includes: The Boeing Company (BA), CMI, HRL, MA

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.

http://www.zerohedge.com/news/2017-10-30/second-crash-warning-imf-%E2%80%93-time-its-about-vol

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.

https://www.nytimes.com/2017/10/27/business/why-bonds-are-not-boring-now.html

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.

            http://blog.knowledgeleaderscapital.com/?p=13632

 

            And for the optimists (medium):

            https://www.bloomberg.com/news/articles/2017-10-30/missing-piece-of-global-growth-jigsaw-starts-to-fall-into-place

 

            ***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.

            http://www.zerohedge.com/news/2017-10-31/eurozone-inflation-unexpectedly-cools

 

            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.

                  http://www.zerohedge.com/news/2017-10-30/stocks-slammed-disappointing-gradual-tax-cut-headlines

                       More:

                  http://www.zerohedge.com/news/2017-10-30/house-will-reveal-its-tax-bill-wedensday-heres-whats-stake

  1. 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.

                  http://www.zerohedge.com/news/2017-10-30/trump-make-fed-chair-announcement-thursday-politico

  1. 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.

            http://www.collaborativefund.com/blog/the-full-reset/

            The rising tide of earnings shenanigans (medium):

            https://www.marketwatch.com/story/why-stock-market-bulls-should-be-wary-of-rising-tide-of-earnings-shenanigans-2017-10-28

 

            The problem with negative forecasts (medium):

            Investor Psychology, Part II: Following The Stock Market Is Bad For Your Returns

 

            The latest from David Einhorn (medium):

            David Einhorn just started one of the most important conversations we can have in a bubble

 

            Why bitcoin continues to gain advocates (medium):

            Bitcoin, Blockchain, And Bank Of America

 

            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.

            The Theory of Maybes

           

    News on Stocks in Our Portfolios

Boeing (NYSE:BA) declares $1.42/share quarterly dividend, in line with previous.

Cummins (NYSE:CMI): Q3 EPS of $2.71 beats by $0.24.

Revenue of $5.3B (+26.5% Y/Y) beats by $510M.

MasterCard (NYSE:MA): Q3 EPS of $1.34 beats by $0.11.

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.

            Regional Fed Manufacturing Overview: October Update - dshort - Advisor Perspectives

   Other

            More on student loans (medium):

            Student Loans: Teacher Horror Story a Reminder of Failure to Fix Broken Servicing Model | naked capitalism

Politics

  Domestic

The fragmentation of society (medium):

The Fragmentation of Society - Mauldin Economics - Commentaries - Advisor Perspectives

  International War Against Radical Islam

Visit Investing for Survival’s website (Home | Investing for Survival | Investingforsurvival.com) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

Disclosure: I am/we are long ba, cmi.hrl, MA.