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05Dec2016 Market Update: DOW Grows At Fastest Pace In A Year, WTI Crude Steady At $52, US Dollar Still Slipping, Investors Becoming Tired (and Sloppy)

Written by Gary

Afternoon trading has slipped off session highs, but is trading sideways on falling volume (SPY +0.5%). The Institute for Supply Management's gauge of service-sector growth rose to 57.2 last month from 54.8 in October.


Here is the current market situation from CNN Money

North and South American markets are mixed today. The IPC is up 1.04% while the S&P 500 gains 0.56%. The Bovespa is off 0.20%.

Traders Corner - Health of the Market

Index Description Current Value
Investors.com Members Sentiment: % Bullish (the balance is Bearish) 76%
CNN's Fear & Greed Index Above 50 = greed, below 50 = fear 76%
Investors Intelligence sets the breath Above 50 bullish 62%
StockChart.com Overbought / Oversold Index ($NYMO) anything below -30 / -40 is a concern of going deeper. Oversold conditions on the NYSE McClellan Oscillator usually bounce back at anything over -50 and reverse after reaching +40 oversold. +3.11
StockChart.com NYSE % of stocks above 200 DMA Index ($OEXA200R) $NYA200R chart below is the percentage of stocks above the 200 DMA and is always a good statistic to follow. It can depict a trend of declining equities which is always troubling, especially when it drops below 60% - 55%. Following a major market correction, the conditions for safe re-entry are when:
a) Daily $OEXA200R rises above 65%
Secondary Bullish Indicators:
a) RSI is POSITIVE (above 50)
b) Slow STO is POSITIVE (black line above red line)
c) MACD is POSITIVE (black line above red line)
64%
StockChart.com NYSE Bullish Percent Index ($BPNYA) Next stop down is ~57, then ~44, below that is where we will most likely see the markets crash. 65%
StockChart.com S&P 500 Bullish Percent Index ($BPSPX) In support zone and rising. ~62, ~57, ~45 at which the markets are in a full-blown correction. 65%
StockChart.com 10 Year Treasury Note Yield Index ($TNX) ten year note index value 23.85
StockChart.com Consumer Discretionary ETF (XLY) As long as the consumer discretionary holds above [66.88], all things being equal, it is a good sign for stocks and the U.S. economy 82.39
StockChart.com NYSE Composite (Liquidity) Index ($NYA) Markets move inverse to institutional selling and this NYA Index is followed by Institutional Investors 10,914

Looking at the last three columns, the first one (Actual), is what was reported this morning. The second column (Forecast) is what analysts had forecast and the third column is the previous report. Full calendar HERE.

What Is Moving the Markets

Here are the headlines moving the markets.

Techs buoy S&P, Nasdaq; Goldman pushes Dow to record high

(Reuters) - Financial and technology stocks powered the Dow to an all-time high on Monday, and set the S&P and the Nasdaq for their best day in two weeks.

Oil hits 16-month high in buying rush after OPEC agreement

NEW YORK (Reuters) - Crude rose above $55 a barrel to hit a 16-month high on Monday as rising prospects of a tightening market after last week's OPEC landmark deal to cut production has given speculators impetus to increase bets on higher prices.

U.S. services sector activity scales one-year high

WASHINGTON (Reuters) - U.S. services sector activity hit a one-year high in November, with a surge in production boosting hiring, further evidence of strength in the economy that clears the way for the Federal Reserve to raise interest rates next week.

U.S. retailers value enthusiasm over experience for holiday hires

(Reuters) - This U.S. holiday shopping season, wearing the brand is more likely to help get you a job in a store than experience, as retailers look for enthusiasm that will persuade customers to spend and help numb the impact of online rivals like Amazon.com Inc.

United Airlines mechanics vote to ratify new contract

NEW YORK (Reuters) - Union mechanics at United Airlines on Monday ratified a six-year joint collective bargaining agreement with the airline, marking the end to several years of contract talks between the two parties.

Trump advisors aim to privatize oil-rich Indian reservations

WASHINGTON (Reuters) - Native American reservations cover just 2 percent of the United States, but they may contain about a fifth of the nation's oil and gas, along with vast coal reserves.

Trump win creates 'considerable' uncertainty, Fed's Dudley says

NEW YORK (Reuters) - The U.S. election of Donald Trump has created "considerable" uncertainty over the policies he will pursue so it is too soon for the Federal Reserve to judge whether its plan for gradual interest rate hikes needs adjusting, one of the most influential Fed policymakers said on Monday.

U.S. attorneys argue Aetna-Humana deal violates antitrust law: trial

WASHINGTON (Reuters) - Attorneys for the U.S. Justice Department argued before a federal court judge on Monday that health insurer Aetna Inc's planned acquisition of Humana Inc violated antitrust law for its Medicare and Obamacare exchange businesses, kicking off a trial expected to last weeks.

Aixtron could revive takeover despite U.S. block: analysts

BEIJING/FRANKFURT (Reuters) - The sale of Aixtron to Chinese investors could go ahead under new terms if the German semiconductor equipment maker sells its Silicon Valley division separately to get around U.S. objections, analysts said Monday.

Trump Advisor Says Administration Not Looking To "Rip Up NAFTA" Or Impose "Quote-Unquote Tariffs"

After repeatedly referring to NAFTA as "the worst trade deal maybe ever signed anywhere" during the presidential campaign, the Trump administration seems to be softening it's protectionist rhetoric. According to The Hill, in speaking to a group of concerned business leaders, Trump advisor Anthony Scaramucci said that the new administration isn't looking to "rip up NAFTA" but rather to "right-size it and make it fairer."

Anthony Scaramucci, a senior advisor on the Trump transition team, told a group of business leaders convened at a bipartisan meeting by the group No Labels that President-elect Trump is a free-trader who is looking to make trade deals more fair, not scrap them.

"I don't think we're looking to rip up NAFTA as much as we are looking to right-size it and make it fairer," he added. "He's got a great relationship, by the way, with the Mexican president. They talk regularly," referring to Trump and Mexican President Enrique Peña Nieto.

Scaramucci said his homework on Trump's economic team has been to study the impact of the North American Free Trade Agreement (NAFTA), which Trump called "the worst trade deal maybe ever signed anywhere" during the campaign.

"I don't think anybody in the administration from the top to the bottom is looking for protectionism. We understand the economic harm and the impact that would take," he said. "I don't think anybody in the administration is looking for quote-unquote tariffs, but I think they are a cudgel if you will to lay out there if we can't get the trade deals to be right-side ...

Wall Street Analysts Are Slowly Losing It

Back in April, we commiserated with BBG ex-trader and commentator, Richard Breslow, who when looking at the ongoing events in markets, had a near nervous breakdown. For those who missed it, here are the key excerpts:

Trading is a hard business. The world is becoming a more complicated place: a number out of China may do more to the price of your U.S. shares in a retailer than, well, U.S. retail sales. Yet creeping, dangerously, into the investment advice dialog is the argument that buying and holding no matter what the event is the winning strategy. If you ever needed a "past results don't guarantee..." disclaimer it's especially true now.

It's not surprising that such shallow reasoning is becoming commonplace. Sure beats staying late at the office doing cash-flow analysis. Bad things happen and the Fed will cut rates. Worked time and again. Presto chango, that financial crisis was a buying event, stupid. It's gotten much worse post the latest financial crisis, as it's assumed asset prices are the main (sole) focus of the all powerful central banks. Equally scary, academics as well as analysts have taken to arguing that investors are overestimating the probability of crisis events. You don't need to be a Taleb or Mandelbrot to calculate that we have been having once in a hundred year events on a regular basis for the last thirty years. Did a crisis happen, if you made money?

This flawed logic argues not only buy every dip, but why waste money on hedges? It assumes unlimited deep pockets and the nerve of a non-sentient computer. Just go "all in." Looking more like today's world all the time. Portfolio theory thrown right out the window. Perhaps Harry Markowitz wi ...

Deutsche Bank CEO Warns Employees "Europe Is Endangered" After Italy Vote

At around the time ECB Governing Council member Ewald Nowotny said that Italy may have to spend taxpayer funds to bail out insolvent banks, warning that "the difference between Italy and other states such as Germany and Austria is that, until now, in Italy there has not been any significant state aid or state takeovers of banks," and that "it therefore cannot be ruled out that it will be necessary for the state to take stakes (in banks) in some way," Deutsche Bank CEO John Cryan sent a letter to employees in which he warned that following the Italian referendum, the economic environment "is a harbinger of renewed turbulence that could spill over from the political arena to the economy - with Europe particular endangered."

He also said Deutsche Bank still needed to finish negotiations with the U.S. Department of Justice, which has demanded $14 billion to settle claims the bank missold mortgage-backed securities. Cryan said he could not give details on how talks were progressing.

The rest of Cryan's "December message to employees" was, somewhat more enjoyable pep talk.

His full letter is below:

December message to employees from John Cryan

John Cryan, Deutsche Bank CEO, sent out the following message to the bank's employees

Dear colleagues,

I would like to share some thoughts from a meeting with the Australian Finance Minister Mathias Cormann just this morning. Together we visited our Digital Factory in Frankfurt Sossenheim. Minister Cormann was impressed by our "future forge", where we develop a ...

WACC Is Back: Getting Ready To Live In An Era Of Rising Rates

Submitted by Adam Taggart via PeakProsperity.com,

When I was fresh out of college in the mid-90s, I landed a job at Merrill Lynch. I was an "investment banking analyst", which meant I had no life outside of the office and hardly ever slept. I pretty much spoke, thought, and dreamed in Excel during those years. Much of my time there was spent building valuation models. These complicated spreadsheets were used to provide an air of quantitative validation to the answers the senior bankers otherwise pulled out of their derrieres to questions like: Is the market under- or over-valuing this company? Can we defend the acquisition price we're recommending for this M&A deal? What should we price this IPO at?

Back then, Wall Street still (mostly) believed that fundamentals mattered. And one of the most widely-accepted methods for fundamentally valuing a company is the Discounted Cash Flow (or "DCF") method. I built a *lot* of DCF models back in those days.

I promise not to get too wonky here, but in a nutshell, the DCF approach projects out the future cash flows a company is expected to generate given its growth prospects, profit margins, capital expenditures, etc. And because a dollar today is worth more than a dollar tomorrow, it discounts the further-out projected cash flows more than the nearer-in ones. Add everything up, and the total you get is your answer to what the fair market value of the company is.

The Weighted Average Cost Of Capital

The DCF approach sounds pretty straightforward. And it is. But it's still much more of an art than a science. Your future cash flow stream is entirely dependent on the assumptions you bake into the model. The dif ...

Italy Vote Puts Bonds to the Test

Italy's rejection of constitutional reform and the resignation of Prime Minister Matteo Renzi are far from being a Brexit-style shock. Markets got this one right. But even more political uncertainty is the result. Italian bonds remain in the crosshairs.

Italian Dilemma: To Bend the Rules or Break the Banks

If Monte dei Paschi fails to raise capital, the eurozone faces two equally unappealing options.

Volkswagen Takes on Uber---Again

Six months after investing in one Uber competitor, the German automotive giant has launched another.

November 2016 Conference Board Employment Index Improved.

Written by Steven Hansen

The Conference Board's Employment Trends Index - which forecasts employment for the next 6 months improved and its authors say "the Employment Trends Index is showing some signs of acceleration, suggesting that employment growth will not slow down further in the coming months".

Have a question for author Michael Lewis? Ask it now!

You should read the new book by the author of "Moneyball," "Liar's Poker" and "The Big Short" if you want to feel greater self-doubt and uneasiness about all your thoughts and life decisions.

White House questions wisdom of Trump call with Taiwan

White House spokesman Josh Earnest on Monday questioned the wisdom of Donald Trump's telephone call with Taiwan's leader Tsai Ing-Wen.

BookWatch: Bill Gates reveals his favorite books of 2016

This list ranges from tennis, business and medicine to political leadership and "mundane stuff that are actually fascinating."

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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