Friday, September 11, 2015

The Morning Call--Data funk

The Morning Call


The Market

The indices (DJIA 16330, S&P 1952) had a relatively calm (up) day.  The Dow ended [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] in a short term downtrend {16997-17916}, [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 {2018-2086}, [d] within an intermediate term uptrend {1906-2679} and [e] a long term uptrend {797-2145}.  In addition, it closed between the lower boundary of a very short term uptrend and 1970, a gap of about 23 points---so one of these boundaries are apt to break in the near term.  I want stocks to get out of this range and then see if there is any technical clarity.

Volume was up slightly; breadth recovered. The VIX fell 7%, but still ended [a] above its 100 day moving average, now support, [b] within a short term uptrend, [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.
The long Treasury fell but remained above its 100 day moving average, leaving it as support and finished within short and intermediate term trading ranges. 

GLD rose, 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 increased 2.5%, but stayed below its 100 day moving average and within a short term trading range and intermediate and long term downtrends.

The dollar fell, closing below its 100 day moving average, which is now resistance, and within short and intermediate term trading ranges. 

Bottom line: the Averages took a break from their volatility shtick yesterday, closing (1) on a long term basis, within a very wide gap between the lower boundaries of their intermediate term trends and the upper boundaries of the short term downtrends and (2) on a short term basis, in a much narrow zone marked by S&P 1970 on the upside and the trend of higher lows on the downside. 

I continue to think that trying to decipher short term direction in this technical morass is an exercise in futility. That said, as long as the lower boundaries of the indices intermediate term trends hold, the Market is in a simple correction in a bull market.

The long Treasury’s pin action continues to suggest a Fed rate hike and a stronger economy.  As you know, I don’t think that this scenario will occur. 

            Technical analysis for the bulls (medium):

            Stock performance in the fourth quarter of a pre-election year (short):


            Yesterday was not a good day in data land: weekly jobless claims fell less than expected, August import and export prices declined more than forecast and July wholesale inventories and sales were disappointing. 

This new batch of statistics pretty much guarantee that this week will be the third in a row for discouraging US stats.   We still need a much longer string of lousy numbers before our forecast gets revised down (again); but this trend is now something that we need to start taking a bit more seriously.

            Of course, we can’t go more than a couple of days without more confusion out of the Fed.  Yesterday’s contribution was an article by Fed whisperer Hilsenrath backing off of his position that the Fed was going to raise rates next week.  As you know, I don’t really give a rat’s ass whether the Fed Funds rate goes by 25 basis points or not because (1) after five years at zero bound and $3 trillion in QE that move would have an almost infinitesimally small impact on the economy, if that and (2) while some investors are worried about the effect of a rate raise on the Markets [which I would agree with], it looks to me like those Markets are already taking the matter of unwinding QE into their own hands.

Overseas, the news was not much better:  August Chinese CPI rose 2% but PPI fell 5.9%; S&P downgraded Brazil’s credit rating to junk; French manufacturing and industrial production were negative; and July Japanese machinery orders were down 3.5%, prompting a government official to predict more QE.

This is today’s absolute must read presentation which examines Japanese QE’s, their success (or lack thereof) and some implications for the US

***overnight, July Italian industrial output was up 1.1%; German and Spanish CPI fell as well as German PPI; and last but not least, Iran appears to be joining Russia with fresh ground troops in Syria.

Bottom line:  the fundamentals are in a three week funk, which clearly provides little reason to assume an improving economic scenario either here or abroad.  The Fed continues to masturbate over an irrelevant 25 basis point rise in the Fed Funds rate while an increasing number of investors are already anticipating an unwind in QE.  The only difference will likely be a little less delicate process than if managed by the boys in the Fed.

So I have no fundamental reason to challenge my thesis that stocks are overvalued. My sense of just how overvalued they might get was clearly a mistake; but it doesn’t change their degree of overvaluation.  

That said, I continue to believe that the technicals have the upper hand in determining Market direction over the short term.

This is a time to do nothing.

   This Week’s Data

            July wholesale inventories fell 0.1% versus expectations of +0.3%; wholesale sales declined 0.3%.

            August PPI came in flat versus estimates of a 0.2% decline; ex food and energy, it was up 0.3% versus forecasts of up 0.1%.




Jeb Bush’s tax plan (short):

Another government shutdown (medium):

  International War Against Radical Islam

            Kerry’s letter to congress on the Iran deal (medium):

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