Wednesday, September 23, 2015

The Morning Call--The continuing negative economic data

The Morning Call


The Market

The indices (DJIA 16330, S&P 1942) continued their schizophrenic behavior, trading down yesterday.  The Dow ended [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] in a short term downtrend {16974-17893}, [c] in an intermediate term trading range {15842-18295}and [d] in a long term uptrend {5369-19175}.

The S&P finished [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] below the upper boundary of a very short term downtrend, [c] in a short term downtrend {2008-2072}, [d] within an intermediate term uptrend {1916-2690} and [e] a long term uptrend {797-2145}.  In addition, it followed through to the downside after its unsuccessful challenge of the 1970 level.

Volume rose; breadth was negative. The VIX (22.4) jumped 11%, ending [a] above its 100 day moving average, now support, [b] back above the lower boundary of its a short term uptrend, voiding Monday’s break, [c] within an intermediate term trading range {it remains well above the upper boundary of its former intermediate term downtrend} and [d] a long term trading range.  Finally, it lifted off the top of the zone (below 20) indicative of more stable stock prices.
The long Treasury bounced 1.5%, closing above its 100 day moving average, still support; and it finished within short and intermediate term trading ranges. 

GLD declined, closing in downtrends across all timeframes and below its 100 day moving average.  It can still build a bottom were it to fail to successfully challenge its July/August lows (104).  But that is yet to be seen. 

Oil was down, staying below its 100 day moving average and within a short term trading range and intermediate and long term downtrends.

The dollar was up again.  It finished right on its 100 day moving average, which is now resistance, and within short and intermediate term trading ranges. 

Bottom line: yesterday stocks executed the negative follow through from breaking the lower boundaries of those very short term uptrends.  Still despite the continuing volatility (which picked back up yesterday), the indices remain in a trading range bounded by the December 2014 lows (17029/1970) on the upside and the lower boundaries of the indices intermediate term trends (15842/1916) on the downside---which is still a fairly tight range; just not as tight as the one marked on the downside by those very short term uptrends.  The immediate issue is the strength of support of the lower boundaries of those intermediate term trends.

            Thoughts from a technician (medium):



            Yesterday’s economic news was again disappointing: month to date retail chain store sales and the September Richmond Fed manufacturing index were both awful. 

            And just to keep investors in an upbeat mood, a regional Fed chief said basically that zero bound interest rates is a failed policy (medium):

            Around the globe, commodity prices were hammered on fears of a weakening Chinese economy, the Brazilian real sank even lower and VW admitted to emission fraud for up to 11 million cars---likely leading to multi-billions in fines, etc. which probably won’t help the German economy (one out of six German workers are dependent on the auto industry).

            China’s rising level of debt (medium):

            China continues its campaign to intimidate the media regarding the economy (medium):

            ***overnight, the September Markit EU manufacturing PMI came in lower than expected; the September Caixin Chinese manufacturing PMI had similar results.
            Expectations for global growth continue to decline (medium):

Bottom line:  the US economic dataflow added one more day to the negative trend.  Ditto the international news.  As you know, I believe that these fundamentals argue for a slowing/shrinking economy/corporate profits.  That is a problem when stocks are near their highs based on multiple measures, though it is not a fatal one.  What makes it fatal is when investor cease to have sugar plum fairies dancing in their heads---and that seems to be starting to happen as the doubts increase that the Fed can manage a soft landing.  And it is only going to accelerate when these guys check their history books and learn something that we have known along, to wit, the Fed has never, ever in all its history executed a successful transition from easy to tight money.  And to make matters worse, any transition from here will be taking place at a time that the Fed’s balance sheet is exponentially larger than any other period in its history.

That said, I continue to believe that right now, short term the technicals are more important to watch than the fundamentals.

            More on corporate profit and revenue growth.  The operative phrase in this presentation is ‘unless the US economy has fallen into a recession’ (short):

            Spending on corporate stock buybacks now exceed free cash flow (medium and a must read):


   This Week’s Data

            Month to date retail chain store sales growth fell dramatically from the prior week.

            The September Richmond Fed manufacturing index came in at -5 versus estimates of +3.

                Weekly mortgage applications rose 13.9% while purchase applications were up 9.0%.


            A good review of last week’s FOMC meeting and decision (medium):

            Misguided interest rate obsession (short):

            ECB ‘sounds’ like it won’t take further easing steps (medium):

            Update on student debt (short):



A problem with being politically correct (short):

An essay critical of Carly Fiorina (medium):


            US to put new nukes in Germany---Yeah, that’s going to work (medium):

                My favorite eurocrat, Nigel Farage, warns of the immigration disaster (8 minute video):

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