Friday, October 23, 2015

The Morning Call--If first you don't succeed, try and try again

The Morning Call


The Market

The indices (DJIA 17489, S&P 2052) staged a Titan III shot yesterday.  The Dow ended [a] above its 100 moving average; if it remains above that MA though the close on Monday, it will revert from resistance to support, [b] below its 200 day moving averages, which represents resistance, [c] in a short term downtrend {17052-17775}, [d] in an intermediate term trading range {15842-18295}and [e] in a long term uptrend {5369-19175}.

The S&P finished [a] above its 100 moving average; if it remains above that MA through the close on Monday, it will revert from resistance to support, [b] below its 200 day moving average, which represents resistance, [c] above the upper boundary of its a short term downtrend {1981-2042}; if it remains above this boundary through the close on Monday, the trend will re-set to a trading range, [d] in an intermediate term uptrend {1939-2731} [e] a long term uptrend {797-2145}, [e] back above its September highs one day after voiding a prior break; I am scoring it neutral,  subject to follow through.

Volume was up; breadth positive.  The VIX (14.4) was down 13%,  finishing [a] below its 100 day moving average, now resistance, [b] within a short term downtrend and [c] in intermediate term and long term trading ranges.  Below 13, it will again represent good portfolio insurance.
The long Treasury was up fractionally, ending above its 100 day moving average, still support, within very short term, short term and intermediate term trading ranges and continues to develop a pennant formation. 

GLD dropped, closing [a] above its 100 day moving average, now support [b] in a short term uptrend [c] in intermediate and long term downtrends.  In my opinion, it needs to successfully challenge the upper boundary of its intermediate term downtrend to conclusively establish that a bottom has been made.

Bottom line: yesterday’s pin action didn’t leave a lot of doubt about where the momentum lies.  To be sure, the time element still remains in the Averages break of their 100 day moving averages as well as the S&P move above the upper boundary of its short term downtrend.  However, volume and breadth support yesterday’s price move. 

That said, bonds and gold seemed unfazed, which is a bit surprising.  In addition, the dollar was strong, reflecting the currency implications of Draghi’s news conference yesterday (more QE; see below).   That is not great news for corporate profits; again meaning the E part of P/E will likely continue to suffer---seemingly not great for stocks.  

The odds of an assault by the Averages on their all-time highs have taken another step higher; although I continue to believe those challenges will be unsuccessful.



            Yesterday was busy on the economic data release front: the good news was that weekly jobless claims rose less than anticipated, September existing home sales were strong and the Kansas City Fed manufacturing index was off less than projected; the bad news was September leading economic indicators fell and the September Chicago national activity index was considerably worse than expected.  So something of an upbeat day which also translates into the first plus week of dataflow in the last eight.  On a less positive note, the primary indicators were mixed---2 up and 2 down.

            However, two developments put those numbers in the rear seat.

(1)   great earnings reports from industry leaders: McDonalds, 3M and after the close tech giants Amazon, Alphabet [formerly Google] and Microsoft.

(2)    round three of Draghi’s ‘whatever is necessary’ theme.  In a press conference yesterday morning, he suggested that more QE and possible negative interest rates were on the table for the ECB’s December meeting.   ‘More’ as in ‘whatever is necessary’ hasn’t worked so far; so the only obvious solution is to double down.

Goldman on Draghi’s comments (medium):

The paradox of negative interest rates (medium and a must read):

And when I say double down, not only does it mean easier money for the EU but also [a] likely raises the odds that other central banks will follow suit {see China below}, [b] puts our ol’ buddy Janet in a bit of a quandary and [c] causes US companies more currency translation problems---something this earnings season points out that they don’t need more of.

Of course, the last thing the Fed wants is to cause US companies even more currency problems and/or drive the dollar still higher because that just raises the chance of a recession in the US.  But we may have reached the point at which what the Fed wants [or can control] doesn’t matter.  In short, it may no longer have the choice of or threat of a rate hike. 
            ***overnight, the October EU Markit composite PMI was better than expected as were many of the sub-categories as well as the individual country aggregate and sub-category numbers; the Bank of Japan lowered its country’s 2015 GDP growth forecast; South Korea reported a better than anticipated third quarter GDP; and last but not least, China lowered key interest rates as well as bank reserve requirements.

Bottom line: given the fact that the Fed is largely comprised of a bunch of spineless doves, not having to worry about whether or not to raise rates may not make a difference.  But my point is that it has allowed itself for too long to be controlled by about a bunch of whiney butt, wimp investors who cry when rate hikes are threatened and may soon find itself in a position where it can’t raise rates in the face of another potential round of aggressive monetary easing (competitive devaluation) by multiple central banks.  The risk is that we may find ourselves in the final stage of QEInfinity being pushed to its logical extreme: deflation/recession.

            The QE fantasy world (medium and a must read):

Net, net, 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.

            The latest from Doug Kass (medium):

            The latest from David Stockman (medium):

            The latest from Lance Roberts (medium):

       Investing for Survival
            What to do if you are under invested and retiring (medium):

    News on Stocks in Our Portfolios
Procter & Gamble (NYSE:PG): FQ1 EPS of $0.98 beats by $0.03.
Revenue of $16.53B (-11.9% Y/Y) misses by $640M.

V.F. (NYSE:VFC): Q3 EPS of $1.07 misses by $0.05.
Revenue of $3.61B (+2.6% Y/Y) misses by $70M.

C. R. Bard (NYSE:BCR): Q3 EPS of $2.28 beats by $0.05.
Revenue of $865.7M (+4.3% Y/Y) beats by $12.77M

Microsoft (NASDAQ:MSFT): FQ1 EPS of $0.67 beats by $0.08.
Revenue of $21.7B (-6.5% Y/Y) beats by $670M.

AT&T (NYSE:T): Q3 EPS of $0.74 beats by $0.05.
Revenue of $39.1B (+19% Y/Y) misses by $1.32B.

Franklin Resources (NYSE:BEN): FQ4 EPS of $0.59 misses by $0.18.
Revenue of $1.87B (-13.4% Y/Y) misses by $30M.


   This Week’s Data

            September existing home sales rose 4.7% versus expectations of a less than 1% increase.

            September leading economic indicators fell 0.2% versus estimates of being unchanged.

            The October Kansas City Fed manufacturing index came in at -1 versus -8 recorded in September.


            The 401k crisis is getting worse (medium):

                Auto loans join student loans as a matter of concern (medium):



The Club for Growth on Ben Carson (short):

Will Puerto Rico get bailed out (medium)?


            The rise of Portuguese defiance (medium):

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