2017/01/26 Commentary: Roadrunner Equities & More Kool-Aid
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COMMENTARY: Thursday, January 26, 2017
Roadrunner Equities & More Kool-Aid
It’s a “Roadrunner” US equities market. The rolling ‘Trump Bump’ saw more justification on Wednesday morning from the new President’s previous executive orders accelerating with the friendly moves toward labor unions, confirmation the Mexican border wall will be constructed, approval of oil pipelines and even benefits for steel companies regarding the construction of the pipelines. As such, analysts and investors who were thinking there could be another good sized correction like the one seen at the end of 2016 (this analyst included) have been left in the dust; just like Wile E. Coyote when the Roadrunner dashed away from him in the old-time cartoons after uttering the classical ‘meep-meep’ horn sound. For those of you who are too young to remember those, a recent GEICO insurance ad returns to a brief bit of those antics. You can view that by clicking on the opening graphic.
So now that the US equities have pushed above the old highs and the slightly higher weekly Oscillator resistance, also classically, that resistance must be considered near-term support. While it might seem a bit elevated, there was a hefty bit of previous topping activity since mid-December that should reinforce the area of those previous highs as support. While we will presently get back to that below, after this market oriented opening section’s assessment there are also more observations on America’s Kool-Aid Crisis that have evolved in the last few days with a humorous note at the end.
Yet as far as the March S&P 500 future is concerned, sustained aggressive increases in weekly MA-41 (as it loses old low end Closes from the sharp early 2016 selloff) mean that the extended weekly Oscillator levels now move up roughly $5 each week. That nearest support threshold was up into the 2,258-53 range this week, tested and held on Monday.
Most telling in line with our reticence to chase the rally, the initial higher weekly Oscillator area this week is up to the 2,279-84 area that it has now overrun. It is interesting that this modest buffer above the mid-December through early-January topping congestion, including the March contract trading high and front month all-time continuation high into 2,278.25, was fully exceeded on Wednesday. That is the additional reason the area around that old high is now near-term support. So where next?
Authorized Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion. Non-subscribers click the top menu Subscription Echelons & Fees tab to review your options. Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to also access the Extended Trend Assessment as well.
NOTE: Given the likelihood the US economy will now get the structural reform that we (along with Mario Draghi and others) have been loudly complaining was not forthcoming since our dual It’s Lack of Reform, Stupid posts in January 2015, we need to adjust our view that a potential economic and equity market failure is coming. We previously referred you back to our December 8, 2015 post for our major Extended Perspective Commentary. That reviewed a broad array of factors to consider Will 2016 be 2007 Redux? While a continued regime of higher taxes and more regulation (i.e. under Clinton) might have fomented a continued weak or even weaker US economy, the tax and regulation changes proposed by a Trump administration that will likely be approved by the heavily Republican Congress now diminish the similar fears we had to what transpired in 2007-2008.
▪ And that March S&P 500 future meaningful overrunning of the key weekly Oscillator resistance points to a test of the further extended major Oscillator resistance that is not until the 2,315-20 area this week, rising to 2,320-25 next week. And the other international equities are also encouraged by this as well as the DJIA finally exceeding the key psychological 20,000 area. That said, the international equities response seems to be somewhat subdued in the UK FTSE in spite of substantial gains in the DAX and NIKKEI. As with the other asset classes, the equities Evolutionary Trend View price levels and general trend assessment remains much the same as the Market Observations in the Extended Trend Assessment in the lower section of last Friday morning’s Commentary ECB & Kool-Aid II (updated after Friday’s US Close.)
The additional psychological support for the extended US equities upside acceleration after the early year stall is reviewed in the ‘Back to Kool-Aid with Economics’ analysis below this opening market trend assessment focused section. That is with the assistance of an extensive well-rounded Wednesday morning Financial Times article.
▪ The govvies are not surprisingly back under pressure in the face of the further US equities rally. And we say ‘not surprisingly’ as opposed to the previous Fed Quantitative Easing-centric phase. At that time weak economic data was positive for equities that could anticipate further stock market investment as the only way to earn anything more than the flat or negative yield available in traditional risk-free vehicles like government bonds and notes.
At this point the better economic data along with further US structural reform and fiscal stimulus anticipation are creating the potential for a return to real ‘demand-pull’ inflation from the Fed’s futile attempts at ‘supply-push’ inflation. With the lack of monetary velocity in the economy due to impediments to investment and hiring, the Fed’s efforts were never going to create enough inflation to foment higher interest rates. But that all changed with the advent of the Trump victory, and the new policies aimed at more US investment and hiring are already having an anticipatory effect.
As such, it is not surprising when economic data and especially inflation indications are coming in a bit stronger than expected (even Germany on the latter; see our previous ECB post), the govvies take fright. Both the March T-note future and March Gilt future are below their respective 124 area supports. The Gilt is worse off on that indication, as 124.00 area has been very important front month and contract congestion, even if the more important lower congestion is the 122.00 area tested in early-mid December.
And that worse performance from a Gilt-Edged anticipating more inflation from a weak British pound does not diminish the importance of March T-note future weakness below its own 124-00 support. While the T-note seems to be holding up better, its next support is even more critical for the overall govvies psychology. Its far more major critical congestion from late-2013 into early-2014 (post Fed ‘taper tantrum’) is the five-and-a-half year lows in the 123-00/122-22 range. Next major supports below that are not until the 120-00 and 118-00/117-22 areas. And as we have pointed out in previous posts, historically the US sets the trend for the other govvies, even if they lag at times.
And that is equally as important now for the strong sister March Bund future that is finally weakening into (and at times even a bit below) the 162.00-161.50 area it refused to retest until Wednesday of this week in spite of the weakness of the others. The next support there is not until the far more critical 160.50-.00 area. The December contract probed that extensively during November prior to its early December expiration. Fortunately for the bulls, the March contract was trading at a significant premium when it took over, and was able to weather the next sharp test during the ECB press conference on December 8th.
▪ As far as foreign exchange is concerned, it is well in line with our previous expectations. That means the US equities stallout raised some concerns for the US Dollar Index. Yet that has not amounted to anything worse than the retest of the 1.0000-50 major (historic and recent) congestion support (Tolerance to .9950) we have seen as likely to hold ever since the post-Trump election surge; just as it did on the early-December reaction.
That has naturally been accompanied by the upside reaction in the other developed currencies after the pressure they were under into mid-December and early-January. That includes the EUR/USD recovery from mid-December through early-January serial slippage below 1.0500-1.0450 to approach the 1.0800-50 resistance (with interim resistance in the 1.0700 area.) It is the same for AUD/USD slippage to its .7150 support prior to recovering back above .7300-.7250 as well as .7550-00, and even the more volatile USD/JPY surge above 116 to 118 area prior to reacting back down generally into the 114 area. Even the Brexit-driven more erratic activity in GBP/USD saw it hold 1.20 area into Prime Minister May’s Brexit plan speech last week Tuesday, and now recover back above 1.24-1.25.
And the US is strengthening a bit once again versus the emerging currencies after their recent strength, other than the significantly politico-economic burdened Turkish lira that remains weak on USD/TRY pushing above 3.80 once again in the past couple of days. That’s it for the market overview for now…
…so once again we’re going to pass the Kool-Aid.
Back to Kool-Aid with Economics
It was a big week for new US President Trump. Really Big… I mean Huge. Uh-oh, looks like Trump-o-bombast might be catching! Yet in truth he did take some further aggressive steps that completely reverse the policies, and even the entire political philosophy behind the most important aspects of the policies of his predecessor. His commitment to building the wall on the southern border with Mexico produced an executive order, which promptly led to the cancellation of a planned visit by Mexican President Nieto. He also signed orders banning refuges from many Middle Eastern countries for 120 days, and Syrian refugees indefinitely. He proposes ‘safe zones’ inside Syria instead.
Yet even more important from an environmental standpoint, he basically lifted the Obama administration’s ban on the construction of Keystone XL and Dakota Access pipelines. That brought charges that the pipelines would be major pollution sources in the areas they traverse. This is pure Kool-Aid of the Green lobby.
In fact, while pipelines may pose some risks for the areas they run through, they are generally much cleaner for the overall environment. There is an excellent Financial Times article on the subject that includes other particulars. While we provide our marked-up version, we always encourage anyone who does not have one to look into a Financial Times subscription.
What it notes is that, “Oil sands generate more greenhouse emissions than many conventional oil and gas sources…” What the anti-pipeline movement (outside of the limited local concerns) is all about is not so much the overall environmental impact of the pipelines as they are general anti-fossil fuels efforts. The truth is that all of that oil sands production is proceeding in any event.
And at present that production is moved from Canada and the northern US to refineries further south via train and tanker trucks. Each of those is more environmentally risky than the pipeline. There is leakage both in loading and unloading, and the occasional catastrophe of a crash. Especially in the case of a train derailment the impact on the local community where the accident occurs is devastating.
And the ultimate rebuff for the Green Kool-Aid is that there are already several major and quite a few minor pipelines running under the Ogallala Aquifer that is the most pressing concern of the anti-pipeline effort. High profile Green supporter Robert Redford said of Keystone XL, “Let’s be honest. (It’s) an accident waiting to happen.” …yet no more so that the dozens already running there without incident. Pass the Kool-Aid.
The ‘Alternate Facts’ on the Right
▪ And now we get to the part our readers on the Left have been waiting for: How the spontaneous bombast of the new US president leaves his team cooking up some of the most potent Kool-Aid in the current ridiculous, toxic ‘post-fact’ environment. In fact, the ultimately very talented Kelly-Anne Conway of Trump victory fame has been covering for Trump misstatements at various times. Yet she was actually forced to say with pride during a confrontation with NBC’s major Sunday Meet the Press show host Chuck Todd that…
“Sean Spicer our Press Secretary gave alternative facts…” (at 2:00 in.) Todd’s response was a visceral chuckle followed by the point that ‘alternative facts’ are just falsehoods. Well, at least someone in the mainstream press is saying it; we wonder if he’ll be as pointed with the folks on his side. (If you want to watch the video, just click on the picture. Apologies for possibly needing to suffer through the advert, but it’s worth it.)
Earlier in the interview she just deflected into another failure of the Left-leaning mainstream press. And afterword she launches into one of those wonderful (or terrible, depending on your point of view) serial diatribes on the failures of the Obama administration that the mainstream media refused to highlight for eight years. She covers everything from healthcare to poverty to education and more. Breathtaking in its one-sided view, yet still nothing more than Right-of-Center Kool-Aid that does nothing to bring the two sides together.
Of course, it is also the counterpoint to the mainstream media serial attacks on pretty much everything that the Trump administration is doing… pass the Kool-Aid.
And a Great Kool-Aid Giggle
We must presume that quite a few of you have already seen this Dutch send-up of an official Netherlands government greeting to new US President Trump. It is the work of Dutch writer, comedian and television personality Arjen Lubach, and was recently shown on his Zontag met Lubach (Sunday with Lubach, hence #zml) weekly VPRO television show. To see such an artful entreaty to Trump in such totally ‘Trumpian’ style is as impressive as it is hysterically funny.
In its way it is the ultimate ‘post fact’ communication, as it is so obviously meant to only have only the most passing relationship with reality. (Once again, apologies for needing to suffer through any advert, but this one is definitely worth it.)
Speaking of passing… this Kool-Aid is worth a sip or two.
▪ We are deferring the full Evolutionary Trend View update into the Market Observations that will be updated after Friday’s US Close in deference to the significant upcoming late month economic influences at the end of a very robust week. Those include German Retail Sales, and the first look at US Q4 GDP as well as Durable Goods Orders and Final Michigan Confidence. That can all be reviewed in the Weekly Report & Event Calendar (accessible to Sterling level and higher subscribers) via the sidebar.
Extended Trend Assessment is available below.
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