Thursday, August 20, 2015

The Morning Call--Developments overseas are getting more negative

The Morning Call

8/20/15

The Market
         
    Technical

The indices (DJIA 17348, S&P 2079) had a rough day yesterday. The Dow remained [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] in a short term trading range {17385-18295}, [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] slightly above its 200 day moving average which has provide strong support of late---the S&P has bounced off of it five times since med June, [c] back below the upper boundary of a very short term downtrend, keeping that trend intact, [d] within a short term trading range {2043-2135} and [e] within an intermediate term uptrend {1889-2651} and a long term uptrend {797-2145}.  At the Market close, the Aggressive Growth Portfolio Sold its trading position in VXX.

Volume was up; breadth was very negative, putting the Market in oversold territory.  The VIX was up 11%, [a] pushing back above 100 day moving average; if it remains there through the close on Friday, 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.
           
Another divergence (short):

            And another (short):

The long Treasury bounced, ending [a] above its 100 day moving average, now support, [b] within short and intermediate term trading ranges and [c] right on the lower boundary of a very short term uptrend, voiding Tuesday’s break.

GLD was up 1.5%, still closing below its 100 day moving average and in short, intermediate and long term downtrends.  However, it set a very short term uptrend.   There remains no great reason to go Buy GLD, but if a serious challenge of this uptrend can be thwarted, then there might be.

Oil got crushed again (down 5%) on very high volume.  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, voiding Tuesday break above it; remains as resistance.  It is also within short and intermediate term trading ranges. 

Bottom line: despite the recent ups and downs of the S&P across several trend lines, the momentum in both Averages is to the downside on a short term basis.  They are in oversold territory, so some bounce in the near future seems likely.  The question, as always, is follow through and its magnitude. 

This is not a technical environment in which I would be buying stocks.  Indeed, any move higher in prices I believe represents a gift to allow investors to sell.

TLT made a big 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 stats were not that great: weekly mortgage applications were up but the more important purchase applications were down; both the headline and ex food and energy CPI reports were below expectations---that is not good if you are the Fed (you have been trying to push it up) or if you are concerned about deflation.

            Overseas, the news was also not so hot:

(1)   China’s stock market sold off and had to be rescued again by the government.  In addition, the IMF declined to include the yuan in its SDR basket of currencies.  I have noted that this was a major objective of the Chinese government; and I am sure that its recent action defending its currency didn’t help---the IMF wants currencies not strictly controlled by their governments.  The question is, what will be the Chinese government’s reaction.

China’s unemployment rate (short):

                   Top Chinese analyst not that positive (medium):

                  IMF declines to include the yuan in SDR basket (medium and a must read):

(2)   estimates were published that the emerging markets had experienced $1 trillion in capital outflows in the last 13 months.  That negatively impacts currency valuations [as their currencies are sold to buy another] and economies [removes potential investment capital]---in short, increasing recessionary and deflationary forces within their economies.

(3)   the German parliament approved the Greek bailout---the bright spot.

***overnight, the Chinese stock market was down 3% with no intervention [see (1) above]; Kazakhstan allowed its currency to float freely and it plunged 23% [see (2) above]

            Of course, the big news item of the day was the release of the minutes from the latest FOMC meeting; and it was another peach---the bottom line of which was that ‘conditions are not ready for a rate increase’ but ‘they are fast approaching’.  In other words, we are still scared sh**less to do anything but we are praying for a miracle.  Honorably mentioned was less concern about Greece, more worry that inflation isn’t picking up like it is supposed to, the belief that energy prices and the (rising) dollar are ‘temporary’ concerns, and much, much more.  I suggest reading the full text 20 minutes before bedtime.

            Fed mouth piece, Hilsenrath’s take (medium):

            Whatever the yahoos do, it won’t be painless (medium):

             Counterpoint from the economic optimist (medium):

Bottom line: yesterday’s FOMC minutes were just another in a long string of ‘on the one hand/on the other hand’ mealy mouthed narratives that conveyed little about its intent.  And there is a very good reason for that---it is clueless.  Actually, it is probably worse than that.  It knows that it has (once again) waited too long to attempt a return to normality (keeping its perfect record of failure intact), it paralyzed with fear that the global economic weakness will begin to show up in the US numbers and it will be left with few, if any, policy levers to combat recession/deflation (and me without my spoon).

The only question is when the Market dreamweavers will come to realize that.  I have no answer for that.  But I do have a Valuation Model that has worked well in the past and that currently points to equities, in general, being well overvalued.  In the meantime, barring a second coming, I see nothing in the fundamentals that will take stock prices noticeably higher.

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 may not be available later on.

                The latest from Doug Kass (medium):

            The bull/bear conundrum (medium):

       
Economics

   This Week’s Data

            Weekly jobless claims rose 4,000 versus expectations of a 4,000 decline.

   Other

            Copper breaks 15 year trend line (short):
           
Politics

  Domestic

Loose ends accumulate (short):

What price will make the government happy (short):

  International

            Ukraine returns to the headlines; referendum planned for November (medium):








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