Tuesday, October 6, 2015

The Morning Call--How long till QE is recognized as a fraud?

The Morning Call


The Market

The indices (DJIA 16776, S&P 1987) turned in second blockbuster day in a row. Still, there was little change in the technical condition of the Market.  The Dow ended [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] in a short term downtrend {17127-17843}, [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 {1996-2057}, [d] in an intermediate term uptrend {1927-2720} [e] a long term uptrend {797-2145}.  It did finish above 1970 which has been resistance; if it remains above that level through the close Wednesday, it will revert to support.

Volume declined; breadth improved. The VIX (19.5) was off another 6.5%, remaining [a] above its 100 day moving average, now support, [b] in short term, intermediate term and long term trading ranges.  Clearly, it is below the 20 price level; further weakness would be a plus for stocks.

The long Treasury was down 1.4% but drifted out of the well-defined strong two week rebound.  It finished above its 100 day moving average, still support; and within short term and intermediate term trading ranges. 

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 very short term uptrend. 

Bottom line: stocks continued their Titan III formation (1) confirming [a] an unsuccessful challenge of the S&P’s intermediate term uptrend and [b] and a retest of the August lows and (2) now challenging the S&P 1970 resistance level.  If that is successful, I can’t rule out a test of the highs.  Two things to note (1) stocks are extremely overbought so some backing and filling should be expected at the least and (2) yesterday’s surge was on lower volume which tends not to be a good sign for a continuing recovery in prices.

            Biggest short squeeze in four years (medium):

            Those who sold in May and went away are now looking to get back in (medium):

            More (medium)

            Thoughts for those getting jiggy about Friday’s intraday reversal (short):



            Numbers didn’t get any better.  Yesterday, the September Gallup consumer spending index was lower than its August reading, September Markit PMI services index and ISM nonmanufacturing index were both below estimates.

Overseas, the EU services PMI, EU composite PMI and EU consumer confidence came in below expectations; the World Bank reduced its growth forecast for China; Saudi cut oil prices.

            ***overnight, an agreement was reached on the Trans Pacific Partnership; August German factory orders fell 1.8% versus expectations of up 0.5%.

            Does anyone see good news there?  OK, if you are still a believer the QE.  Or if you are still a believer that lower oil prices are an unmitigated positive.  I am neither.  Indeed, I think that one day all the optimists are going to wake up to a recession and realize that QE is a fraud.        

A growing risk of recession (medium):

            And globally as well (medium):

            A slightly more sanguine view (short):

            The Fed still hasn’t caught up to reality (medium):

            The Fed is powerless to boost jobs (medium):

            David Stockman on the Fed (medium):

            The precarious position of global central banks (medium):

Bottom line: the economic data remains terrible both here and abroad.    Unless that changes, economic and valuation forecasts on the Street are likely to move lower irrespective of whether there is more QE.  Indeed, if the stats do continue to weaken and we do get more QE, we are all the closer to a Fed confidence implosion.

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

   This Week’s Data

            The September Markit PMI services index was reported at 55.1 versus estimates of 55.8.

            The September ISM nonmanufacturing index came in at 56.9 versus forecasts of 58.0.

            The August US trade balance was -$48.3 billion versus expectations of -$48.6 billion.


            Labor Market Conditions Index:



Quote of the day (short):

  International War Against Radical Islam

            Syrian war about to expand?

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