Wednesday, September 30, 2015

The Morning Call---Will the break in the S&P hold?

The Morning Call


The Market

The indices (DJIA 16049, S&P 1884) managed a weak rebound from Monday’s shellacking yesterday.  The Dow ended [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] in a short term downtrend {17131-17866}, [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 {2001-2065}, [d] challenging its intermediate term uptrend {1923-2716} and [e] a long term uptrend {797-2145}. 

The Dow remained above the lower boundary of its intermediate term trading range (15842), while the S&P closed below the lower boundary of its intermediate term uptrend (1920) for a second day.  If remains there through the close on Thursday, the trend will re-set to a trading range.   Were that to occur, the next two levels of support are the August low of 1867 and last October’s low of 1819.

Volume fell; breadth improved. The VIX (26.8) was off 3%, remaining [a] above its 100 day moving average, now support, [b] within a short term uptrend and  [c] within an intermediate term trading range {it remains well above the upper boundary of its former intermediate term downtrend} and a long term trading range.  The current reading suggests more volatility ahead.

The long Treasury was up again, continuing a strong two week rebound.  It finished above its 100 day moving average, still support; and within very short term, short term and intermediate term trading ranges. 

As a result, at least partially, of Icahn’s investment video, the high yield bond market is coming under more intense scrutiny with some red flags being raised.  Here is a sampling of concerns:



            And this on investment grade bonds (medium):

The dollar stayed below its 100 day moving average for a second day.  If it remains there through the close today, it will revert to resistance.

GLD fell again, finishing [a] below its 100 day moving average, still resistance, [b] within short, intermediate and long term downtrends but [d] is still developing a very short term uptrend. 

Bottom line: stocks were about as noncommittal as they could have been yesterday---no follow through to the downside, no strong bounce from an oversold position.  That leaves everyone guessing about the next move.  The one semi-telling factor was the S&P closing well below the lower boundary of its intermediate term uptrend for a second day---keeping the challenge period alive and leaving the August low and last October’s low as near term possible support levels.  With no usable technical information coming from yesterday’s pin action, I continue to watch.


            Yesterday’s economic news was mixed: September consumer confidence was well above estimates, month to date retail chain store sales grew at the same pace as the prior week, the July Case Shiller home price index fell versus expectation of a rise and the August trade deficit was higher than anticipated.  While some investors got jiggy with the consume confidence number, it is a lagging indicator.  That said I don’t want to minimize good news.  Nevertheless, it does little to alter the tone of this week’s economic data to date.

            A lot of time was wasted by the media yesterday on whether or not a government shutdown was in offing---‘wasted’ being the operative word.  Senate approval was never really in question.  To that end, it passed a procedural vote Monday.  The house has always been where the doubts were generated.  However, Boehner’s resignation freed him from having to worry about trying to hold the republican caucus together and giving him the flexibility of working with democrats.  That should result in likely passage of the continuing resolution---today.

            Overseas, the Indian central bank lowered interest rates more than expected, keeping the QE/currency devaluation story alive and well.

            ***overnight, September EU CPI fell to -0.1% while unemployment was unchanged; August German retail sales dropped 0.4%; and believe it or not, Abe is suggesting yet another round of QE.

Bottom line:  the good news is that the Market probably won’t have to worry about a government shutdown, at least till December and consumer confidence smoked it estimate.  The bad news is that the rest of the economic data reflected what has been a weakening series of stats, QEInfinity got another boost from India and the Fed officials are now towing the line on a ‘rate hike sooner rather than later’. 

Most markets aside from equities are not supportive of that scenario.  Of course, stock investors are the ones who will take it the snoot if rates do rise since they are the ones who have profited most from zero rates.  As you know, I think that the rate hike debate a waste of time because (1) a 25 basis point increase in the Fed Funds is irrelevant to the economy and (2) the Fed is slowing but surely losing investor confidence, so a rate increase will likely only impact the stock market via accelerating that process; in other words, even if the Fed doesn’t increase rates, the stock market will still probably go down.

In the meantime, I continue to believe that right now, short term the technicals are more important to watch than the fundamentals.’

            Pogo on Fed policy (medium):

            The latest from John Hussman (medium):


   This Week’s Data

            The July Case Shiller home price index fell 0.2% versus an expected rise of 0.1%.

            September consumer confidence came in at 103.0 versus forecasts of 96.0.

            Month to date retail chain store sales advanced at the same rate as the previous week.

                Weekly mortgage applications fell 6.7% while purchase applications were down 6.0%

            The September ADP private payrolls report showed an increase of 200,000 jobs versus estimates of a rise of 190,000.

            China is not fixed (medium):

            Oil demand starting to pick up (short):



Clinton’s prescription drug plan (medium):

Quote of the day (short):

  International War Against Radical Islam

            Russia approves military action in Syria (medium):

No comments:

Post a Comment