Interesting TACs of the Week (January 20 – January 26, 2018)

Summary – A top-down review of interesting calls and comments made last week in Treasuries, monetary policy, economics, stocks, bonds & commodities. TAC is our acronym for Tweets, Articles, & Clips – our basic inputs for this article.

Editor’s Note: In this series of articles, we include important or interesting Tweets, Articles, Video Clips with our comments. This is an article that expresses our personal opinions about comments made on Television, Tweeter, and in Print. It is NOT intended to provide any investment advice of any type whatsoever. No one should base any investing decisions or conclusions based on anything written in or inferred from this article. Macro Viewpoints & its affiliates expressly disclaim all liability in respect to actions taken based on any or all of the information in this article. Investing is a serious matter and all investment decisions should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerance.

 

1.Freight Train

How dumb were we to call this stock market a stampede? It is a runaway freight train. Last week, the Dow closed above 26,000 for the first time. Silly us, 27,000 seemed quite far away to us last Friday. Well, the stock market sure taught us. The Dow covered more than half the gap between 26,000 & 27,000 to close at 26,617. So we could run over Dow 27,000 next week. It would take more effort for the S&P to get to 3,000.

Given the market reaction on Friday (Dow up 224; S&P up 33 handles) to President Trump’s speech at Davos, we have to wonder whether the State of the Union speech could propel Dow above 27,000 and the S&P to 3,000. Both at Davos and here in America, people are finally waking up to what the Tax Cut means to US Corporations. Some like Bob Lang (), a colleague of Jim Cramer, called the Tax Law a “Christmas miracle”. The tweet below captures what President Trump has meant to the S&P since his election:

After the mess of the Obamacare repeal & replace, the tax cut bill was not taken seriously when it was proposed. But with the stunning success of that Tax Cut, at least as measured by all the announcements by major US corporations, a call to arms by President Trump for a major infrastructure program would be taken seriously. That is why we wonder what the Stock market would do if President Trump announces a new infrastructure program or other growth stimulating initiatives during his State of the Union speech.

Is that why the stock market doesn’t seem ready to signal a top?

This may sound strange but, based on one indicator, some of the sentiment froth faded as the stock market went to new highs at the end of this week:

  • – interesting development in over 4 days: while all equity indices (S&P 500, Dow Industrial & Nasdaq) closed today higher than they did on Monday, DSI fell significantly: 96% to 78% 97% to 79%

So what is the smart tactic in this environment? As Lawrence McMillan wrote on Friday:

  • “In summary, $SPX remains in a bullish state, and $VIX remains below 13. So the intermediate-term outlook is positive. The growing overbought conditions will certainly have to take a sharp toll eventually, but one cannot blindly short this market — that would have been a disastrous approach. Rather, wait for confirmed sell signals before trying to trade what could be a sharp, but likely short-lived, correction down to support near 2700.”

But is there any one who can put a top on this move & suggest a target level to short the S&P?

2. US Dollar

The really big story of the week was the steep fall in the US Dollar. It was exacerbated to an extent by the comments of Treasury Secretary Mnuchin. But that was about the extent and not the direction. We wonder whether this ruckus about Mnuchin’s remarks is a sign of heightened awareness or nerves. And does such heightened awareness suggest at least a a local peak of any kind?

And daily sentiment index is also pointing to a little more downside for the Dollar, with emphasis on “little”.

  •  Jan 24- On the Hedge Fund Telemetry Daily Note on 10/30 I posted the chart of the USD bullish sentiment at 91% and today bullish sentiment reached 8%. It’s on day 10/13 with a downside daily DeMark Countdown and 11/13 with a weekly. A little more downside ahead

3. Commodities

Commodities sure enjoyed the steep decline in the Dollar. Oil was above 4%, Ag stocks were up 3% and Gold miners were up 4%. Gold is not just up but actually making a relative higher high.

Yet, the short term looks troublesome to some:

 

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