About Me

Retired chief investment officer and former NYSE firm partner with 40 years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Sunday, May 21, 2017

SPX -- Weekly

My e-inbox is stuffed this week with indications of growing pundit / strategist impatience. This
is the first such suggestion in 2017, although it should not be a surprise given the continuing
flat market and a volatile week. I am not receiving  much bearish commentary, but rather
intimations that its high time for more upside or, maybe it will be wise to think about reducing
exposure.

My forward looking cyclical economic indicators have continued on the flat side since the end
of January, and, like the market, have not evidenced much in the way of volatility. The Congress
has taken up tax reform with emphasis on revenue take neutrality, and it is possible traders are
starting to miss Trump team leadership on a more stimulative set of guidelines with a clear focus
on significant deficit financing.

The weekly SPX chart shows the market is still working off a serious intermediate term over-
bought situation including now double top resistance at 2400. The market's range over the past
few months has been tight and there has not been the sort of sustained corrective action to
provoke thinking that a fresh buying opportunity might be at hand.  Similarly, there has not been
a test of the 40 wk. m/a since last autumn. I do not have a strong view on market direction near
term, but my discipline says not to trade extended overbought situations on the long side. The
chart does suggest there is upside through 2400 but maybe not very much.  SPX Weekly

Friday, May 19, 2017

SPX -- Daily

I plan to do a weekly update before the end of the weekend, so this piece is intended to focus
on the short term as revealed by the SPX Daily

There was a sharp and overdue dip this week as the Trump farrago captured The Street's focus
for a day, but news that the Congress is taking up a large tax reform program led to some cheer as
the week ended. The price gap alluded to a couple of weeks ago with the announcement of the
Trump tax proposal was closed by the sharp sell off on Wed. The partial rebound toward week's
end closed half the distance after the big downer on Wed. The market is still laboring under the
SPX double top at 2400, which marks clear short term resistance. There is short term support for
the SPX a little above the 2320 level.

The MACD looks a little nasty, but the SPX is now in relatively neutral territory.

Tuesday, May 16, 2017

Gold Price

In early 2016, economic fortune turned positive for the gold price in the form of faster economic
growth and accelerating inflation. It prompted a dramatic cyclical run for gold off its low in the
$1050 oz. area up to an unsustainable peak of $1375 in Aug. of last year when speculative froth
in the futures market bubbled up to dramatic new highs.  As expected then, the gold price corrected
to a deeper than expected low near $1125 late last year. That translated into a 7% price gain for the
2016, which seems appropriate to me, after all the dust settled. My shorter run economic and
inflation indicators have both lost substantial positive momentum so far this year, so the typically
volatile rally in gold in 2017 has been too strong on the inflation front in my view. Now there are
a bevy of potential geopolitical risk factors still ahead for 2017 ranging from North Korea on to
elections in Iran through to the Brexit saga, more elections in Europe and unsettled global
diplomacy reflecting The Donald in his role as wrecking ball of the old world order. On top,
with the US expected to be less dominant in the growth of the world economy this year, the
US dollar has been weakening so far in 2017 (which is fine by me).  So, gold has been getting
some support from both geopolitical uncertainty and a weaker USD, which has lost some haven
status.

With a correction underway in the USD, the gold price has some traditional appeal even though the
recent rally in anticipation of trouble after the French election has not materialized.  Gold Daily 


Friday, May 12, 2017

SPX -- Weekly

Fundamentals
Measured y/y, business sales and profits remain quite strong. Forward looking economic indicators
still suggest growth deceleration out ahead, but even this case is not closed yet. The future inflation
pressure gauge has weakened after a strong period of recovery starting in early 2016. Inflation may
also be set to moderate out ahead. Thus, the faster economic growth / inflation thesis which was
the bedrock for the strong up leg in the stock market since early 2016 hasn't yet collapsed, but has
dissipated considerably since earlier in the year. The market rally over the past couple of weeks
primarily reflects Trump talk of 'massive' tax cuts later in the year and hopes that he will keep
the infrastructure and offshore and dollar repatriation programs alive. If you are in it to win it
with The Donald, simply be prepared to continue to wade through the Trumpian horse shit that
will flow steadily our way.

Technical
Basically, the market remains overbought for the intermediate term with mild corrective action
quickly remediated in recent weeks. The market has now formed a 'secondary top'. This may
merely be incidental, but it could also be the prelude to something nastier as happened in mid-
2015. The SPX is also trading at the top of its 20 week Keltner channel, a development that
commands extra attention.  SPX Weekly

Trump And The Russians
There is plenty of smoke here, but how big the fire is is far from clear. In making FBI Director
Comey walk the plank this week, he has alienated the FBI to its core. Regardless of how the
investigation proceeds, figure that at some point in his tenure, the boys with the short hair cuts
and dark suits will take a large bite out of Trump's ass. Even a Trump built dyke will spring
serious leaks if it comes to that. 


Monday, May 08, 2017

Oil Price

Wicked isn't it? Confidence built strongly over the course of last year that the oil price had made a
decisive bear market low just under $27 bl. in Feb. 16. What followed was a powerful seasonal
rally into Oct. There was seasonal weakness afterward, but since Nov. of last year the market's
trading pattern has been somewhat off - kilter seasonally as debate has focused on whether
OPEC / Russia production cuts would allow rising demand to balance off supply such that, by
later this year, we could see crude rise to $60. By early 2017, speculative long positions in the
oil futures market had reached record levels. That intense speculation plus already dramatic yr/yr
% price momentum produced a dramatic overbought in the market as I suggested in posts earlier
this year. I argued that there would be at least a price "hiccup", and we have seen such over the
past couple of months after the normal or seasonal round of price strength over the Feb. - Apr.
failed to pan out. WTIC Daily

Indicators reveal a marked improvement in global economic demand over the past year. However,
the rate of progress may have peaked, at least temporarily. On the supply side of the oil equation,
US output recovery has exceeded earlier expectations, with the  NA rig count having more than
doubled since last May and capacity utilization at the well head now having risen to over 93%.
Even Libyan crude output is topping expectations. So, the story of supply / demand balance this
year is less sturdy now than it was. Moreover, speculative long positions in the oil future have
been sharply reduced, but are now in a gray area where further liquidation cannot be discounted
even if the pace of redress slackens. Seasonals have not been that important, but it should be noted
that Jun. ahead is normally a weak month.

The upshot here is the game of guessing on the direction of the oil price is now more tenuous
 in the near term. The technicals here are mixed. The oil price is in a volatile short term down-
trend and is behaving poorly against its 200 day m/a for the first time in quite a while. On
the plus side, the market is oversold and even though timing measured in days is not sure,
there is a rally out there before too long.

Saturday, May 06, 2017

The VIX Volatilty Index

I make limited use of the VIX index. However, when the weekly index falls into the 10 -12 range,
there is a clear suggestion to expect volatility in the stock market to rise out ahead. This means
that it would be normal to expect some corrective action, but it certainly does not imply that it
will be major. Even so, the current nearly historically low VIX does suggest that when the market
moves into a more volatile period, it can certainly last a while and be a little spooky.  VIX Weekly

Thursday, April 27, 2017

SPX -- Monthly

The SPX remains in a cyclical bull market and is experiencing its third leg up since the bottom in
early 2009. The third leg commenced in Feb. '16, and was confirmed during the past year by a
positive turn in the very important monthly MACD measure.  SPX Monthly

It is very difficult to judge how far and how high this leg may carry. There is sufficient capital
slack in the US economy to carry the market well into 2019 even though the labor market is getting
tighter. Also, there are plans to be debated in the Congress to cut taxes, repatriate foreign retained
earnings and develop a sizable infrastructure program. It seems at this point that the Trump admin.
would prefer to fund most of the contemplated tax cuts and increased spending on infrastructure
projects via substantially larger Treasury and agency funding. The size and funding of these
programs must pass muster in a Congress which richly embodies the deep political, economic and
social divisions in the US.

Since the first powerful surge of economic recovery which completed over 2010 - 2011, the pro-
gression of economic expansion has been slow (real growth) and low (modest inflation). The Fed
has choked off growth of basic liquidity since the end of 2014, and is now following a policy of
gradually raising short term interest rates. Headwinds have replaced powerful tailwinds on the
monetary front and the market has moved from a low risk / high return environment to one of
rising cyclical risk and less assured returns.

With both labor force and productivity growth running low, future business sales and earnings
growth potential are running well below long range experience, the stock market is reliant on
a continuation of low inflation and interest rates to remain competitive in the capital markets.

The stock market is once again running above the upper band of its price range starting from
the end of WW 2.These periods can extend for a few years, but downside price risk is rather
high even though a bear phase may not now be imminent.

Investors are so keenly interested in the Trump admin.'s stimulus programs because they forsee
accelerated economic and earnings growth coupled with probable moderate Fed tightening and
faster but not skyrocketing inflation that would combine to give them a shot at earning excess
returns for a few years. Absence of such programs seems to beckon dreary and risky times as
well as lousy bonuses for investment managers and rising career risk in a business that is not
short of capacity.

So, there could be some market downside if the Congress ties these stimulus outlines up in knots
and confounds all the equity investment mangers who are hoping for a new lease on life.