The Morning Call
9/30/15
The
Market
Technical
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:
And:
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.
Fundamental
Headlines
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):
Economics
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.
Other
China
is not fixed (medium):
Oil
demand starting to pick up (short):
Politics
Domestic
Clinton’s prescription
drug plan (medium):
Quote of the day
(short):
International War Against Radical
Islam
Russia
approves military action in Syria (medium):
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