Geo-Political Concerns Outweigh Good Earnings

I update each Saturday.  The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month.  You can always scroll down a few weeks and find the latest “Long Term” update.

Economy:

Jobless claims are very low consistent with uninterrupted strength in the labor market. Initial jobless claims came in at 244,000 which is near consensus and which pulls the 4-week average lower for a 3rd week in row, down a sizable 4,250 to 243,000.  March’s softness in the labor market wasn’t enough after all to hold back the index of leading economic indicators which came in at a March gain of 0.4 percent to beat Econoday’s high forecast.  Crude oil inventories fell 1.0 million barrels in the April 14 week to 532.3 million, but they are up 4.9 percent from last year at this time.  The resale market, after a period of steady sales, is now accelerating to new expansion highs. Existing home sales rose a very sharp 4.4 percent to a higher-than-expected annualized rate of 5.710 million. This is the best rate since February 2007.  A weather-related surge in utility output masks what is otherwise a weak industrial production report for March. Total production rose 0.5 percent on a record 8.6 percent increase at utilities. But manufacturing production, where a small gain was expected, fell 0.4 percent in what likely reflects Category 3 storm Stella which hit the Northeast at mid-month.

These are good numbers, with the exception of industrial production (which we give a pass this month on account of the storm).  Existing home sales are very strong; I think seasonally it is a strong time of the year and people may be buying if they can, before interest rates go higher.

Geo-Political:

The focus is still on the situation with N. Korea, and that will keep a damper on the market for a while.  I would have given a lot to hear the “deal” go down between Trump and Chinese president Xi Jinping.  Oh, you want us to control N. Korea?  You should agree that you will not charge us as currency manipulators, and you should not place an import tariff on our goods coming into the US.  Tension with Syria and their Russian supporters seems to have eased to the back burner.  The election in France tomorrow will likely result in a runoff between nationalist Marine Le Pen and more centrist Emmanuel Macron.  The runoff will happen in only two weeks, May 7, and that is when the fireworks will happen.  Le Pen wants to pull France out of the EU, and with Britain and France both pulling out, that would likely kill the EU.

Technical Analysis:

Earnings for Q1 are pretty strong, projected to rise 9% vs last year.  The stock market is mired in a minor correction.  Something is wrong.

What’s wrong?

  1. Geo-political concerns, primarily N. Korea, followed by Iraq/Syria and ISIS, and relations with Russia.
  2. Trump administration competency. Following their failure on healthcare, and disarray in the republican congress, the 9% rise in stocks since the election comes into question.  Instead of tax reform, might we just get a small tax cut?
  3. The stock market is overvalued, and it gets hard to push stock prices higher, especially given the backdrop of #1 and #2 above. A 9% jump in earnings for Q1 would certainly help the valuation if stock prices don’t rise from here.

Technically speaking, in the shortrun we are still in a correction.  It is up to the market to breakout decisively above or below the purple channel.  Both RSI (top of chart) and MACD (bottom of chart) are in neutral territory, and the market price action is in the center of the down channel.  The market moved up a little last week, so can good earnings provide the boost to climb over the top of the down channel and get us back to rally mode, or will geo-political fears win the day and keep us in correction mode?  I don’t know the answer, so I await more information from the market.  I bought a little SPY two weeks ago, and I sold a few Put options this week on stocks I’d like to own if the price dropped on them.

2017 04 22 sp

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Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Rich Comeau, Rich Investing

Long Term – April 2017

Once a month, on a Wednesday around mid-month (15th or the next week), I will put up a long term view of the market.  This is provided for investors who don’t want to trade secondary swings in the market, but would like to exit the stock market when a bear market begins, or enter the market when a new bull market begins (change in the primary trend).  In the blog, they will always have a title called “Long Term (month) (year)”, so you can use your browser “Find” function and easily find them.

Economics:

GDP – The Atlanta Fed maintains GDPNow and currently projects GDP for Q1 to come in at +0.5%, down from 1.2% last month.  The first reported number will come in another week, and it gets revised twice, once in May and again in June.  This estimate is light, but the winter quarter is always light.

Annual GDP growth has been stable for a few years at a 2% annual rate.  This GDP number supports the assertion that the bull market continues. 

Year Quarter GDP %
     
2017 (GDP Now) Q1 0.5
2016 Q4 1.9
2016 Q3 3.5
2016 Q2 1.4
2016 Q1 .8

 

Fed interest rates – The Fed raised the Fed Funds rate by a quarter of a point at the March meeting and maintained its projection of two more hikes this year.  The market absorbed this news without a negative reaction, so it looks like the market supports the Fed’s action.

However, notice that the rates on 5 yr., 10 yr. and 30 yr. treasuries have come down, approximately to where they were in November.  One explanation is that the bond traders sense a slowing in the economy that will keep the Fed on hold from future rate hikes, which would be bad for stocks.  Another explanation is that with elections in France and Germany looming, and the potential for success by nationalistic candidates, that money is flowing into the US bond market (which also offers higher yields than European bonds).

Interest rates are in an uptrend, but nominal rates are historically low and supportive of the bull market.

Date Fed Funds Rate 5 Year Treasury 10 Year Treasury 30 Year Treasury
Apr 18, 2017 .9 1.7 2.2 2.8
Mar 15, 2017 .9 2.1 2.6 3.2
Feb 15, 2017 .6 2.0 2.5 3.1
Jan 18, 2017 .6 1.9 2.4 3.0
Dec 21, 2016 .6 2.0 2.6 3.1
Nov 15, 2016 .4 1.6 2.2 3.0

 

Valuation:

PE on S&P 500 – The current 12 month trailing GAAP PE on the S&P 500 is 23.7, down from 25.0 last month.  I used 4 quarters of earning with the most recent being Q4 2016.  The recent 3% correction in stocks reduced the valuation.

This remains moderately overvalued relative to my trimmed 30 year average of 19.

In a bull market, stocks can remain overvalued for years, so this is not a sell indicator, but it is a cautionary sign.

S&P earnings – As of April 13 (with 6% of the companies in the S&P 500 reporting actual results for Q1 2017), 76% of S&P 500 companies have beat the mean EPS estimate and 59% of S&P 500 companies have beat the mean sales estimate.  Earnings estimates are projected to come in 9% higher than a year ago, the biggest Y-o-Y increase since Q4 2011.

This indicator is supportive of the bull market.

Age of primary move, bull or bear market – The bull market is 8 years old, which is a long bull market by historical standards.  In and of itself, this is meaningless.  It does provide some perspective that one should keep in mind.

Geo-Political:

The global economy is relatively quiet at the moment and most regions show slow steady growth.  Political forces have changed quite a bit in the last month, primarily with N. Korea testing missiles and nuclear bombs, and the US sabre rattling in response.

Global geo-politics is supportive of the bull market, but risks are rising.

Technical:

Technically the S&P continues to run in the bull market channel it has been in for the last 8 years.  The RSI (Relative Strength Index, upper right) is at 70, which is overbought, but you can see months-long periods where the RSI remains overbought.  However, better returns come from putting money into the market when it is oversold, or at least not overbought.  MACD (Momentum, lower right) is flat, reflecting the minor two month correction we are in.

2017 04 19 sp Long Term

The market’s price action supports the thesis that the long term bull market remains in force. 

Conclusion:

The stock market remains in a bull market technically, and there is nothing in the general economy, in Fed policy, or in the global geo-political realm to overturn that conclusion.

Rich Comeau, Rich Investing

Geo-political Tensions

I update each Saturday.  I will put up the Long Term update for April on Wed. the 19th.  The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month.  You can always scroll down a few weeks and find the latest “Long Term” update.

Economy:

Initial jobless claims continue to surprise to the downside, coming in at 234,000 in the April 8 week vs Econoday’s consensus for 243,000. The 4-week average, at 247,250, is down 3,000 for the second straight decline.  After cooling in February and March, the consumer sentiment index is showing new strength. Preliminary April index is up 1.1 points to 98.0 which beats the Econoday consensus by 1 full point.  Yesterday’s producer price report set up the disappointment for today’s report on consumer prices where the headline CPI fell a very sharp and unexpected 0.3 percent in March.

Retail Sales:  First-quarter consumer spending is in trouble. Retail sales fell 0.2 percent in March which is under the Econoday consensus for no change. Importantly, February sales are revised sharply lower, to minus 0.3 percent vs an initial gain of 0.1 percent.  Vehicle sales round out the quarter with a 3rd straight sharp decline at minus 1.2 percent. Sales at gasoline stations, due to lower prices, fell 1.0 percent. But when excluding both vehicles and gasoline, sales could only manage — despite sky high consumer confidence — a second straight 0.1 percent increase.

Hmmm, a mixed bag here.  Jobs data is good and consumer sentiment is excellent.  But the softness in retail sales is worrisome, as is the negative CPI data.  On balance, this is negative for stocks since consumers drive the economy.  This could just be the end of the winter season, and “peak autos” level, so let’s see what happens as we get into spring.

Geo-Political:

Tensions in Syria and with their Russian allies, and with N. Korea, have riled the markets, and the correction has continued despite good early earnings from Delta Airlines and JP Morgan, among others.  Of the two, the more concerning is N. Korea, since they have nuclear weapons they could use against the south, and their leader is less stable.  Trump has stated that China needs to take action to stop N. Korea from developing a delivery system capable of hitting the US with a nuke, and if China does not, the US will act alone.  If the US attacks N. Korea, the assumption is that they will retaliate by hitting Seoul S. Korea.  A serious shooting war is one of the events that can stop a bull market, so that risk is now out there.

Technical Analysis:

The correction continues.  Absent events in N. Korea, I would not expect to see the correction worsen very much, but with the Korean situation front and center, this could get worse.  So far, the correction is limited to 3%, but with this wild card out there, and in an overvalued market, we could drop further.  This is over-shadowing early positive earnings statements.

Technically we should be ready for a bounce up, and good earnings would support that.  The market is short-term oversold with RSI (top section of the chart) down at 35.  We are also at the bottom of the correction channel, so you might expect a bounce up.  In a bull market you do not stay oversold for long, look to the left and see when RSI has gotten down to 30, the market has bounced up.  However, none of these recent oversold conditions has happened with the threat of a shooting war, and this is overriding the technicals.  We haven’t seen a 10% correction in over a year, will it happen here?

I did make a small buy in SPY on Wed., but I will wait for the Korea situation to stabilize right now.  I have a few lowball buy orders sitting out for stocks I’d like to own.  Generally, I have been heavy in cash for over a month and that has served me well.  I think the bull market is in effect, so I will work on my buy list while I wait for things to stabilize.

2017 04 14 sp

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Rich Comeau, Rich Investing

Correction Continues

I update each Saturday.  The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month.  You can always scroll down a few weeks and find the latest “Long Term” update.

Economy:

The March motor vehicle sales data is unusually weak, down 5.7 in the month to a 16.6 million annualized rate that is a 2-year low, and that follows weak Jan. and Feb. data.  It’s 7 months in a row that the ISM manufacturing index has beaten the Econoday consensus though not by much in March, only by 1 tenth at 57.2. But the result is 5 tenths lower from February which is the first month-to-month slowing for this composite since August.  Factory orders may not be showing the same kind of strength that the ISM and Philly Fed are pointing to but they are solid, hitting Econoday’s February consensus at a 1.0 percent gain.  Slowing in employment is a warning signal in the March ISM non-manufacturing report where the headline composite slowed to a 5-month low of 55.2.  Initial jobless claims in the April 1 week fell a very sharp 25,000 to a 234,000 level that is 11,000 below Econoday’s low forecast. The 4-week average is down 4,500 to a 250,000 level that, however, is nearly 10,000 above the month-ago trend.  The employment situation report came in with a weaker-than-expected 98,000 increase in March nonfarm payrolls. This compares with Econoday’s consensus for 175,000 and a low estimate of 125,000; it is the weakest reading since May last year.

There is slight weakness in several areas of the data for March, but there was very bad weather in the northeast US.  Q1 data is typically weak due to weather conditions, so let’s see how the spring goes.

Geo-Political:

The big dust-up for the week was Syria’s use of chemical weapons, and the US response by firing 59 cruise missiles at a Syrian airfield.  The market reaction was nil.

Technical Analysis:

The market seems listless.  The Trump rally has lost steam due to the republican failure to get out of the starting blocks on healthcare reform.  Many feel they wanted to do something fast, and when restructuring 18% of the US economy, you should not move very fast; rather you should carefully consider what you are doing.  Next up is tax reform, and it is complicated also.  It is being promised for August, but many now feel it could slip into 2018, which could take some more wind out of the Trump rally sails.  Earnings season starts this week, and if earnings are as good as the last few quarters, the market should rally despite what is happening in Washington.

We are in an aging bull market that is overvalued, so there are risks.  The Fed is on a tightening path but this risk is farther down the road, current rate levels are still accommodative.  The middle class is still plagued by slow wage growth.

Technically, the market remains in the purple-line downtrend on the upper right of the chart below.  RSI and MACD are in neutral territory.  The market could correct for a few days, but by weeks end when earnings start coming in, if that is positive, earnings should dominate for the next 6 weeks.  In that case, I will swing into the market in a bigger way, as I have been out for a few weeks except for some oil stocks that I bought for the dividend, as I thought they had over-corrected.  The two pinkish horizontal lines on the right of the chart at 2280 and 2200 represent support levels if the current correction picks up steam to the downside.

2017 04 08 sp

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Rich Comeau, Rich Investing

Rally Week in a Correction

I update each Saturday.  The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month.  You can always scroll down a few weeks and find the latest “Long Term” update.

Economy:

Crude oil inventories rose 0.9 million barrels in the March 24 week to 534.0 million, up 6.0 percent from last year at this time.  An upgrade for consumer spending gives a boost to the third estimate for fourth-quarter GDP, now at 2.1 percent annualized growth vs 1.9 percent in the second estimate.  Initial jobless claims did fall 3,000 in the March 25 week but the level of 258,000 is higher than expected and, next to the prior week’s 261,000, is the highest so far this year.  The consumer sentiment index eased 7 tenths lower in the final half of March to 96.9, below Econoday’s consensus but still making for a 6 tenths gain from February’s 96.3.

Steady growth.

Geo-Political:

I looked around, and did not see any international news this week that would impact on US markets.  Britain began the formal process of leaving the European Union, notifying them on Wed. of their intention to leave.  This will be interesting.  One of the issues in the Brexit referendum was immigration and the dilution of “British society”, and the loss of jobs to the immigrants.  On the other hand, London will lose many high paying banking and financial jobs, as London was a hub of finance activity for all of the EU.  Those jobs will be pulled back to the mainland.

Technical Analysis:

The market was rising this week, but as you can see from the chart, it is within the context of a correctional down channel (the purple lines).  On the chart we see a healthy, not too steep up channel (the black lines), then the steeper and less sustainable Trump rally phase shown by the red lines, and finally the current correction shown by the purple lines.  The case could be made that the market is still in any of those trends, which is what makes conclusions about where we are, difficult to call right now.  Technically we should pay most attention to the latest trend, which is the correction.  The market needs to rally and meaningfully exceed 2380 (the upper boundary of the correction band) to get back on the red line Trump rally band.  Alternatively it needs to correct some more to get back down in the longer term, more sustainable uptrend of the black lines.

It’s a bull market, but an overvalued aging bull market.  The Fed is accommodative, but with a tightening bias.  There is political intrigue in Washington that is keeping the market nervous.  Earnings season will start in 12 days or so, and if earnings are good like they have been for a few quarters, and I think they will be good (the dollar has even come down 3% recently which will help the multi-nationals), that should help the market rally.

I’ve been nibbling at some fallen angels, XOM, EOG, and TBT.

What I would like to see (not a prediction) is more correction next week, followed by a good earnings season and a rally into early May.  Let’s see.

2017 03 31 sp

Below is the chart on TBT, which is an ETF that is “short” against long term treasury bonds.  Treasury bonds lose value in the secondary market when rates rise, so a short position against long term treasuries will gain in value as bonds go down.  You can get whipped around, since during a stock market selloff, many people sell stocks and buy safer bonds.  This causes a big quick rally that would push TBT down, even in the middle of a bullish phase for TBT.  There are no simple markets out there.

2017 03 31 TBT

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Rich Comeau, Rich Investing

Market Correction

I update each Saturday.  The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month.  You can always scroll down a few weeks and find the latest “Long Term” update.

Economy:

Existing home sales are on the soft side of expectations, down 3.7 percent in February to a 5.480 million annualized rate and below the Econoday consensus for 5.555 million.  New home sales shot 6.1 percent higher in February to a 592,000 annualized rate that easily beats the Econoday consensus for 565,000 and is near the top estimate of 600,000. Sales appeared to have gotten a boost from builder concessions as the median price fell a monthly 3.9 percent to $296,200 for a year-on-year rate that’s suddenly in the negative column at minus 4.9 percent (WOW!).  Durable goods orders jumped 1.7 percent in February to beat Econoday’s consensus by 2 tenths.  In mixed results, initial jobless claims rose 15,000 to a 7-week high of 258,000 but the 4-week average, reflecting how low recent levels have been, rose only 1,000 to 240,000.

Overall, things look good, but I have wondered what would happen to car and home sales when interest rates rise.  Existing home sales fell, while new home sales rose on the back of price cuts by the homebuilders.  It’s just a one month number and no reason to panic right now, but it bears watching.  With interest rates rising, savers will get a few extra dollars per month in their money market accounts, let’s see if that works its way into the consumer economy.

Geo-Political:

China, why do I keep looking at China so much?  China is our largest individual nation trading partner.  If you count the European Union as one trading partner, they are 20% above China, and China would be second.  In terms of global GDP ranking, it’s USA, China, Japan, Germany, UK.  Events in China can have a dramatic impact on the US, and on the whole world.

“The perception that China is overleveraged is simplistic, the chief executive officer (CEO) of Prudential told CNBC Friday during an exclusive interview from the mainland.

“The structure of leverage in the country is improving definitely and has a way to go,” said Mike Wells, noting that he did not fully agree with the widespread belief that China is overleveraged.

“You have to look at where China is as an economy. It’s at the middle end of an industrial phase … They’re still looking at the supply and the demand side of the economy as hard, which I think gets lost sometimes in the narrative about China,” he added.

“I think you will see more structural reform and efficiency in production … There’s a very economic look, there’s a very balanced look at consumers, they haven’t tapped the consumerism that’s in the economy by any means and I think there’s a lot of upside,” opined Wells, highlighting that the insurance group he heads has enjoyed “great growth” in both mainland China and Hong Kong in recent years.”

http://www.cnbc.com/2017/03/24/china-is-not-overleveraged-says-prudential-ceo-mike-wells.html

Now, should we believe the article?  I have no real reason to disbelieve it, but on the other hand, it is just one guys opinion.  He probably has contacts in China and should know more than I do, so I should listen to him.  On the other hand, he may have invested in tons of Chinese bonds that he does not want to see tank in value, and he may be, in the parlance of the industry, “talking his book”, or saying something not because it is true, but because it helps the financial position of his company.  I don’t have access to his “book” of investments, so I don’t know.  I will take the piece of information under advisement.  Sometimes you don’t find out if he was talking his book for a year or two, sometimes longer, until some major financial crisis occurs for his company, a big loss.  Then you understand his comments better.  Over a couple of years, I will read 20 articles by different organizations on China’s ability to deal with their debt load and based on all of those data points, I will form a better opinion.

Domestically, the major issue of the week was the failure of Trump to deliver a repeal and replace of Obamacare.  This damages Trump’s credibility further, he said he would do this “day one”, he invested significant effort, and he failed.  It’s a chink in the armor, and brings into question whether he can deliver on other major initiatives like tax reform and infrastructure spending.  The belief that those issues will result in wins for Trump and be good for the economy is not the slam dunk everyone thought it was in January, and is dampening the “Trump rally” in the stock market.  Just how much it will dampen things, we’ll see.

Technical Analysis:

The market had a significant selloff on Tuesday, dropping about 1% on the major averages.  Trump’s credibility took a hit on Monday when the FBI and NSA directors both testified before congress and stated there was no evidence to support Trumps tweets that Obama had Trump Tower wiretapped.  His credibility fell further on Friday with the failure of the effort to repeal Obamacare.  It is not good from the market’s perspective to see a weakened president because it limits his ability to get other things done that need to get done.

The market clearly has entered a correction phase and is down about 2% from the high, which is not bad so far.  Everyone knew the market needed to correct as it had been going up without any actual good news.  It had been going up at a faster trajectory than usual (see the two red lines), mostly on the hope of better things to come, and actual good earnings from Q4.  But, the market wants to look ahead, not backward.

Technically the market is not in good shape in the short run.  MACD (lower right of chart) is headed down indicating weakening momentum.  RSI (see the glossary off a link at the top of the page for a definition) continues to weaken and is sitting at 45 this week.  In a bull market RSI will usually vary between 50 and 70, and in a bear market it will usually vary between 30 and 50.  30 is always regarded as oversold, and 70 as overbought.  But in a bull mode, 50 can represent the lower area for a correction; usually the market does not get all the way down to 30 for a full oversold, unless we get a serious correction over 5%.  We had a 5% correction in the run-up to the election in Nov. and RSI briefly went down to 30, and the last 10% correction was over a year ago.  The market is sitting at the bottom of the steeper inclined channel (red lines) and the top of the more natural incline channel (black lines).  It takes more energy for the market to stay in the steeper channel, like a rocket ship consumes a huge amount of fuel to climb straight up into the sky.  Frankly, I’d like to see the market continue to correct for a while and go back to running in the more sustainable lower channel with the black lines.  That said, the market does not care one bit what I want to see.

I took a little vacation last week and did not trade.  Having sold out the week before, I would have gone short with a small bet and make a little money.  With the RSI already down to 45 and the primary trend being bullish, I won’t go short here at this point.  I’ll wait and see if it looks like we’ve reached the bottom of the correction before committing more to the market.

2017 03 25 sp

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Rich Comeau, Rich Investing

No Man’s Land

I update each Saturday.  The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month.  You can always scroll down a few weeks and find the latest “Long Term” update.

Economy:

The CPI rose .1% in Feb., and the core rate of inflation year-over-year was up 2.2%, which is about where the Fed wants to see inflation.  Retail sales could manage only a 0.1 percent gain in February but January, which was already solid, is now revised 2 tenths higher to 0.6 percent.  Conditions in the labor market remain strong and stable as initial jobless claims are holding at trend, down 2,000 in the March 11 week to 241,000.  The consumer sentiment index, which unlike other confidence readings had been edging back slightly, is once again showing increasing strength, at 97.6 for the preliminary March reading vs February’s final at 96.3.  Leading economic indicators are showing a rare string of strength, rising in February for a third month at a very strong 0.6 percent rate.

Everything looks rosy!

Geo-Political:

The Fed concluded their March meeting on Wed. and as expected they hiked the Fed Funds rate by a quarter of a percent to the range of .75 – 1.0%.  They reaffirmed their intent to raise 2 more times this year.  Even with this rate hike, the Fed is still accommodative.

The G-20 finance ministers met in Baden Baden, Germany last week:

“We are working to strengthen the contribution of trade to our economies,” G20 finance chiefs said after a two-day meeting in the German resort town of Baden Baden, well short of a past commitment for rules-based, transparent, non-discriminatory, open and inclusive multilateral trade.

Seeking to put “America first,” Trump has already pulled out of a key trade agreement and proposed a new tax on imports, arguing that certain trade relationships need to be reworked to make them fairer for U.S. workers.

U.S. Treasury Secretary Steven Mnuchin, who represented the Trump administration in his first G20 meeting, earlier said it had no desire to get into trade wars but trade needed to be made fairer, a reference to big trade deficits with key G-20 members, such as Germany and China.

After meeting German Chancellor Angela Merkel on Friday, Trump said he did not believe in isolationism but that trade policy should be fairer.

International trade makes up almost half of global economic output and officials said the issue could be revisited at a meeting of G-20 leaders in July.”

http://www.cnbc.com/2017/03/18/g-20-financial-leaders-fail-to-reaffirm-free-trade-commitment.html

The question remains, can Trump apply a tax on imports and NOT provoke a trade war.

There are good reports from China on their economic growth:

2017-03-18

BEIJING — Economists in China are optimistic about growth prospects in the first quarter (Q1), a survey showed Friday.

Of economists surveyed, 28.2 percent forecast faster year-on-year economic growth in Q1, up by ten percentage points from a quarter ago, according to the Institute of Industrial Economics (IIE) under the Chinese Academy of Social Sciences.

Only 20.6 percent expect growth to slow, significantly down from the 45.6 percent seen in the last quarter.

China’s GDP registered a 6.7-percent year-on-year increase in Q1 of 2016. Growth for Q1 is scheduled to be released by the National Bureau of Statistics (NBS) on April 17.

Confidence in the economy has improved, the IIE said, citing a marked increase of its economic climate index, which rose to 105 from 68 in the fourth quarter of 2016.”

http://www.chinadaily.com.cn/business/2017-03/18/content_28601299.htm

The concern in China is that this rosy looking growth is simply a result of government stimulation, and is not a result of the success of their attempt to migrate their economy to being consumer led.

Technical Analysis:

I reset and cleaned up the chart below, it was time.

There is nothing outstanding in the chart, I think we are in no-man’s land.  RSI is neutral.  MACD on the bottom of the chart is still trending down.

You can see the market has begun to rise at a faster rate (the two red lines channel) than the previous slower growth channel (the two black lines).  Faster growth rates are less sustainable.  The market is overvalued on a 12 month trailing earnings GAAP PE basis at 25 vs. 19 for the 30 year trimmed average.  This indicates caution.

I had bought into the market last week after a one-week pullback.  I sold that position this week on Thursday taking a small profit, after the market rallied on Wed. in response to Janet Yellin’s Fed press conference where she made dovish remarks after the rate hike, then the market failed to follow through on Thursday.  I will trade a late-cycle overvalued market different than an early-cycle undervalued market.  I will exercise greater caution.  I think the upside opportunities now are more limited given the overvaluation, and the downside risks are greater.

2017 03 18 sp clean up

If you enjoy these updates, please tell your friends and family who are interested in the stock market about this blog.

Your comments and questions are always appreciated, so feel free to comment using the “Leave a Comment” feature just under the title of the post!

Rich Comeau, Rich Investing