Friday, August 21, 2015

The Morning Call--The Averages are challenging new technical support levels

The Morning Call

8/21/15

The Market
         
    Technical

The indices (DJIA 16990, S&P 2035) had another rough day yesterday. The Dow remained [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] below the lower boundary of its a short term trading range {17385-18295} for a second day; if it finishes below that boundary today, it will re-set to a short term downtrend, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5369-19175}.

The S&P finished [a] back below its 100 day moving average, leaving it as resistance, [b] below its 200 day moving average; if it remains below that MA through the close next Tuesday, it will revert from support to resistance, [c] below the upper boundary of a very short term downtrend, [d] below the lower boundary of its short term trading range {2043-2135}; if remains there through the close on Monday, it will re-set to a downtrend and [e] within an intermediate term uptrend {1889-2651} and a long term uptrend {797-2145}. 

Volume was up; breadth was negative (as you might expect), though the Market has pushed into very oversold territory.  The VIX was up 25%, [a] ending above 100 day moving average for a second day; if it remains there through the close today, it will revert from resistance to support and [b] within a short term trading range, an intermediate term downtrend and a long term trading range.

            Big cap stocks are starting to break down (short):

The long Treasury was strong again, ending [a] above its 100 day moving average, now support, [b] within short and intermediate term trading ranges and [c] above the lower boundary of a very short term uptrend.

GLD spiked again, still closing below its 100 day moving average and in short, intermediate and long term downtrends.  However, it is in a very short term uptrend, which could potentially be signaling that a bottom has been made.   It is still too soon to be considering buying GLD on anything other than a trading basis; but if a serious challenge of this uptrend can be thwarted, then there might be.

            And:

Oil was down again.  It finished below its 100 day moving average and within short and intermediate term downtrends. The dollar fell, closing back below its 100 day moving average, which represents resistance.  It is also within short and intermediate term trading ranges. 

Bottom line: more serious technical damage was done to the Averages yesterday.  They closed in oversold territory, so a bounce in here would not be surprising.  But the key is follow through.  And, if to the upside, will that it negates the challenges to those multiple trend line breaks?

This is not a technical environment in which I would be buying stocks; unless I was a day trader.  Any move higher in prices I believe represents a gift to allow investors to sell.

TLT continues its recent recovery, reaffirming the no Fed rate hike and/or a weakening economy scenario.  GLD continues to hint a bottom, though we won’t know until its very short term uptrend successfully holds off a challenge.
           
    Fundamental

       Headlines

            Yesterday’s US economic news was mixed: the August Philly Fed manufacturing index was better than expected, July existing home sales were much better than anticipated, weekly jobless claims were mildly disappointing and July leading economic indicators were really disappointing.  Nevertheless, the economic data this week in total is going to be negative; the first time in a number of weeks.

            Overseas, the news remains dismal: the Chinese stock market was off 3%, Kazakhstan devalued its currency and Brazil reported unemployment up for the seventh month in a row.

            ***overnight, the August Chinese manufacturing PMI was down for the fifth month in a row, stocks were off 4%, but the government defended the yuan; the August EU manufacturing PMI was flat.

Bottom line: the negative dataflow on the global economy is gaining momentum.  Maybe this is just a brief outlier.  The other alternative, of course, is that recession/deflation is starting to become manifest.  We won’t know for a couple of weeks; but clearly, economic conditions are not looking that promising as of the close last night.

 Aggravating this situation is investor realization that the Fed is clueless, that it has no idea how to extract itself from an intractable situation of its own making; and as a consequence, it has lost or is losing investor confidence that it is capable of ‘having the Market’s back’.   

Another must read from David Stockman (medium):

I said yesterday that ‘the only question is when the Market dreamweavers will come to realize that’.   Maybe we have reached that point; maybe not.  But it doesn’t change the thesis that there is a disconnect between valuations and fundamentals; and sooner or later, that spread will mean revert.

I continue to believe that the key investment strategy today is to take advantage of the current high prices to sell any stock that has been a disappointment or no longer fits your investment criteria and to trim the holding of any stock that has doubled or more in price.  They soon may not be available.

            All bubbles are different (medium and today’s must read):

    
Economics

   This Week’s Data

            The August Philadelphia Fed manufacturing index came in at 8.3 versus estimates of 7.5.

            July existing home sales rose 2.0% versus forecasts of down 1.5%.

            July leading economic indicators fell 0.2% versus consensus of up 0.2%.

   Other

           
Politics

  Domestic

  International War Against Radical Islam

            Comments from Iran (short):
               
            War heats up on Syrian/Israeli border (medium):





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