Monday, October 26, 2015

Monday Morning Chartology

The Morning Call


The Market

       Monday Morning Chartology

            The S&P challenged multiple resistance levels last week: (1) its September high [resistance] which will revert to support today if the S&P closes above it, (2) the 100 day moving average [resistance] which will revert to support if the S&P closes above it today, (3) the upper boundary of its short term downtrend, which will re-set to a trading range, if the S&P closes above it today and (4) the 200 day moving average [resistance and is the wiggly red line in the chart] which will revert to support if the S&P closes above it on Wednesday.  

            At this point, it sounds trite to keep repeating that the S&P will likely challenge its all-time high (2134) and/or the upper boundary of its long term uptrend (2161).  Looking at the chart there is virtually no resistance between Friday’s close and those levels.  However, I will also repeat that I think that those challenges will be unsuccessful.

The Halloween indicator (medium):

                The long Treasury remains above its 100 day moving average, within very short term, short term and intermediate term trading ranges and continues to build a pennant formation.  Just looking at last week’s pin action, bond investors were not impressed with the ECB/Bank of China’s latest QE moves.

            Gold was equally unimpressed with the opportunity offered by lower interest rates or future inflation.  That said, its chart has improved markedly in the last month---it having re-set its 100 day moving average from resistance to support and its short term trend from a trading range to an uptrend.  I would like to own some gold in our Portfolios but given the stream of false breakouts over the last year, I am unwilling to make a commitment until it successfully challenges its intermediate term downtrend.

            You can clearly see the impact on the dollar of the aforementioned QEInfinity moves.  It is challenging its 100 day moving average and a very short term downtrend.  As I noted last week, US companies don’t want to see this because of the negative impact of currency appreciation on their earnings---another excuse for the Fed not to raise rates.

            As you might expect, the VIX (14.4) reflects the recent run in stock prices, falling below its 100 day moving average and re-setting its short term trend to down.  Oddly, it was actually up in the face of Friday’s strong market performance.  I continue to think that it offers value as portfolio insurance in the 12-13 range.


            Last week’s economic was upbeat both here and abroad for the first time in eight weeks.  At home pluses included the October housing market index, September housing starts, month to date retail chain store sales, weekly jobless claims, September existing home sales, the October Kansas City Fed manufacturing index and the October Markit manufacturing PMI flash index.  Negatives included September building permits, the October Chicago national activity index and September leading economic indicators.  So those numbers were positive by a substantial margin.  The primary indicators, however, were evenly divided, two up (September housing starts and existing home sales), two down (September building permits and September leading economic indicators).  Still this was a good week.  Now we just need more of the same stuff.

            Overseas, the dataflow was also upbeat with the most significant developments being the repeat of the ‘whatever is needed’ meme from Draghi and the next day follow up from the Bank of China lowering interest rates and bank reserve requirements. 

At the risk of beating a dead horse, I was a whole lot less impressed with this newest round of QE than the rest of the Market for one simple reason---except for QEI, QE hasn’t worked anywhere in any amount, so to do more reminds me of the definition of insanity, i.e. doing the same thing over and over but expecting a different result.

            Central bankers’ death wish (medium):

            Why lower rates won’t help China (short):

Bottom line:  don’t chase stock prices at these levels.  Indeed, use the strength to take some profits in winners and/or eliminating investments that have been a disappointment.

            Bank of America on playing the rally (medium):

       Investing for Survival
            The inevitable periods of underperformance:

    News on Stocks in Our Portfolios

   This Week’s Data





            Update on Portugal (medium):

            Update on the refugee crisis in Europe (medium):

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