Market Recon Friday

Good Morning,
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Gold.
                       Physical gold bottomed out just above the 1200 spot on Thursday. I still see a strong case for gold in the long-term, but I do get that most of us live in real time. We only talk about physical gold here, because the rest of that space is fine as a trading vehicle, but will not do anything for you on the day that you realize that you’re going to have to fight your neighbor over a rusted can of beans. Yields are trending higher, meaning that interest rates are already higher. Understand that at least. The FOMC (the tail) increasing the Fed Funds Rate is simply a formality. The bond market (the dog) has already made that decision for them.  Where does gold get interesting again? I think this is a dangerous spot, unless the current rotation in our markets is complete. Not likely. A failure to hold somewhere in the high 1190’s probably allows gold to drop as far as the 1155/60 range, and then we’re talking about 1110/20. I probably wait until we see 1115, or if this premise is wrong… 1305 before taking my allocation back up to 7.5% from it’s current 5%. If you have not already lowered your allocation in this space, I would not necessarily do anything at this level as long as the last sale is still above your average point of entry.
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Trader Focus.
                     Speaking of the current rotation. We all know by now, that cash levels are down. Money has been put to work ahead of the Santa Claus rally (still a month away), and the early January inflow. Does this rally still have legs? Yes, I believe so. Are traders going to take profits when they realize they’re looking at found money? I am. I doubt that I stand alone in that mindset. You only feed your family if you actually ring the cash register. That said, yesterday the S&P 500 closed 35 points above Monday’s low. Financials, Discretionary names, and obvious slices of the Industrials have continued to out-perform. Now Tech even seems to be catching up. The coming of lower corporate tax rates, and repatriated money is still out in the future, while intense activity in currency exchange markets is right here, right now. Fourth quarter earnings are going to get a beat-down, and make valuations look skewed going into the first half of 2017.
                       A move higher will continue to require hopium…. and odds are that there is enough hopium to make it work. Never let yourself forget that markets don’t have to be rational. Price discovery is simply the end result of demand and supply at any given micro-second. Rational thought will always eventually return to the pricing mechanism, key word…..eventually. The retail investor is talking about these markets. People that never talk the stock market are asking questions again. While that type of activity usually presents danger, it also usually brings with it, an explosive top. Sometimes very explosive. A rocky, nerve-wracking road will traveled, but my portfolio will remain net long until the S&P 500 hits 2300…. or bust. Whichever comes first.
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Macro
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05:30 – Fed Speaker: St. Louis Fed Pres. James Bullard spoke on banking this morning from Frankfurt. Bullard is a voting member of the FOMC, whose recent leanings towards at least a one time increase in the Fed Funds Rate have been clear.
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09:30 – Fed Speaker: Kansas City Fed Pres. Esther George will speak on the place of oil in this economy from Houston, Texas. George, who will vote in December has been the Fed’s most ardent supporter of increasing the Fed Funds Rate throughout the year. She will take questions from the audience.
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09:35 – Fed Speaker: New York Fed Pres. William Dudley speaks again today from New York City. Yesterday, Dudley, who is a permanent voting member of the FOMC did acknowledge that while the modern era’s move away from traditional full time employment has lowered Unemployment that it may be increasing the level of worker vulnerability. Does that mean that he understands why the Phillips Curve hasn’t worked out the way it was supposed to? Sounds like it. Maybe he can explain it to the Fed Chair who just does not seem to get it.
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10:00 – Leading Indicators (October): Expecting 0.1%, September 0.2% m/m. This item is likely headed for it’s fourth positive monthly number in five months. Not that it matters. You have never in your career heard a trader or an investor say “What are they looking for?” regarding this data-point. The series is irrelevant.
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11:00 – Kansas City Manufacturing Index (November): October 6. KC has now printed in expansion for two consecutive months for the first time since a fourteen month stretch that ran from January 2014 through February 2015. On top of that, the strength has been right where you want it… in New Orders.
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13:00 – Baker Hughes Rig Count (Weekly): Last Week total 568, oil 452. Last week, the number of US rigs sort of took a breather, adding two oil rigs, and cutting three gas rigs. This number can impact crude prices, though there are many factors that are probably a bigger deal in the space right now.
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13:30 – Fed Speaker: Dallas Fed Pres. Robert Kaplan speaks from Houston, Texas at the same conference that KC Fed Pres. Esther George spoke at this morning. Earlier this week, Kaplan who will vote in January sounded quite hawkish. Like George this morning, Kaplan will open himself up to questions.
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21:45 – Fed Speaker: Federal Reserve Gov. Jerome Powell is set to speak tonight on trade and emerging markets from San Francisco, California. Powell is permanent voting member of the FOMC, whose term runs through 2028, so get used to him.
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My S&P Cash Levels
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2205, 2193, 2187, 2180, 2172
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Friday’s Earnings Highlights
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Before the Open: ANF (.25), BKE (.52), FL (1.10)
After the Close: Maybe a good night for a disgusting plate of nachos.

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