Weekend Reading: The Trump Train Continues To Roll

Tyler Durden's picture

Submitted by Lance Roberts via RealInvestment Advice.com,

The market rally on Wednesday was quite a stunner given the already full extension of the market advance following the election. However, as Art Cashin noted in his latest note to his clients (courtesy of Zerohedge)

“Around 11:45, a series of electronic buy programs helped lift the Dow and S&P out of the morning’s narrow range. I noted that in an email to some friends around noon:

 

What many of us did not realize at the moment was the probability that the buy programs may have been triggered by events in another sector. Just before the buy programs kicked in, the rally in the Dow Transports was shifting up a gear as the index was on the verge of punching through to a new record high. If the Transports made a new record high, it would confirm the record high in the Industrials, thus giving a Dow Theory buy signal.

 

As that realization spread, the algorithms kicked in with buy program after buy program and the race was on.”

dow-theroy-breakout-120816

The problem with the breakout and advance on Wednesday is the exacerbation of the market’s deviation from its longer term mean. As I noted on Tuesday:

“The importance of understanding the nature of reversions is critical for investors. Markets rarely move in one direction for very long, notwithstanding overall trends, without a correction process along the way. While the chart below shows this clearly for the overall market, it applies to individual sectors of the market as well.”

sp500-marketupdate-120816

“Importantly, notice the bottom two part of the chart above. When there is a simultaneous culmination of overbought conditions combined with a more extreme deviation, corrections usually occur back to the underlying trend.

 

This can also be seen in the next chart as well. While the “Trump Rally” has pushed asset prices higher and triggered a corresponding “buy signal,” that signal has been triggered at very high levels combined with a very overbought condition. Historically, rallies following such a combination have not been extremely fruitful.”

sp500-marketupdate-120816-2

While the “exuberance” of the Trump rally has certainly awakened the “animal spirits,” the sustainability of the advance from such egregiously overbought conditions is questionable. David Rosenberg weighed in on this point via The Globe & Mail:

“Okay, so the president-elect is now at 3 percent, again skewed by two or three sectors. Big deal. Ronald Reagan, who was the original ‘Make America Great Again’ advocate (as opposed to a copycat), saw the equity market soar 6 percent in his first month in office.

 

Guess what? The market peaked less than four weeks into his term and for the next two years, we had an economic downturn and a 25-percent slide in the stock market. The combination of rising bond yields, Fed tightening, and a stronger dollar took care of that honeymoon.

 

After all, we all know what happens when the honeymoon is over. The hard work begins.

 

That slump we just saw in October export volumes and widening in the trade deficit is surely just an early sign of what is to come.

 

Before The Donald does anything on his first hundred days, something tells me the lagged impact of the tightening in financial conditions associated with the recent bounce in interest rates and appreciation of the U.S. dollar is going to come back and bite the economy in the tush, as was the case heading into 2016.”

And then there is the “hope this time is different” philosophy as well.  

While you decide, here is what I am reading this weekend.


Trump, Economy & More Trump


Markets


Interesting Reads


“Lesson number one: Don’t underestimate the other guy’s greed.” — Scarface

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trumpala's picture

Gary Cohn? Seriously?

slaughterer's picture

What about Lloyd Blankfein as a last-minute replacement for VP Pence?   

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) slaughterer Dec 9, 2016 4:50 PM

What about Bernie Solomon Wasserkohnbergbaumblumsteinadelwitzgoldfarb? Isn't he available?

Wilcox1's picture

I hate that David Stockman retired. Can't someone coax him out?

Spungo's picture

He'll go back to writing 500 page daily articles if you give him some Adderall

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) Spungo Dec 9, 2016 6:01 PM

So if I give him some Subtracterall, he might knock that down to a tweet?

Normalcy Bias's picture

Big deal. Ronald Reagan, who was the original ‘Make America Great Again’ advocate (as opposed to a copycat), saw the equity market soar 6 percent in his first month in office.

Someone sounds bitter! ; - )

orangegeek's picture

That chart porn makes my fruit of the loom go boom.

King Tut's picture
King Tut (not verified) Dec 9, 2016 4:50 PM

Trump=Status Quo 

g'kar's picture

The "markets" relaxed as soon as all the swamp critters started heading back into the White House

Barnaby's picture

No he drained the swamp. Open season for cockroaches.

AlexCharting's picture

Obama will get all the credit for the post-financial crisis bull-market... Trump will only get a very cold shower early in his term... big bear. Trump knows this, and thats why he is filling his team with financial experts. Bannon got various videos on youtube where he explains the huge risk in the financial system. 

Barnaby's picture

You've got a point, but I have to disagree. I can clearly remember the event we call "the Reagan bump" when every Tom, Dick and Peckerwood was patting himself on the back after the Iran Hostage crisis ended. History is happy to heap undue praise, much like GWB should receive full credit for Cash 4 Clunkers.

buzzsaw99's picture

industrials, lulz

Barnaby's picture

Uhhhhh, short everthing but P&G? The world's always gonna need ass-paper.

Peterk_kk's picture

As the doomsayers keep saying sell - it is time to BUY.

I'll start selling when Paul Krugman jumps on the train and says Buy.

apberusdisvet's picture

Itsa coming folks,  itsa coming.  You have at best one month to complete preparations; cash out except for a minimum for bill pay.

Barnaby's picture

That goddamned Stockman article about sheep to slaughter makes my testicles draw up. I think I'm going to put my minimum annual distribution into a personal helicopter this year.

onwisconsinbadger's picture

Thank you President Obama for the stock market. I may retire on January 20th. Thank you again.