Wednesday, October 14, 2015

The Morning Call---international data remains dreadful

The Morning Call


The Market

The indices (DJIA 17082, S&P 2003) finally took a rest, though there was nothing notable about the retreat.  The Dow ended [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] in a short term downtrend {17099-17808}, [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 {1990-2051}, [d] in an intermediate term uptrend {1933-2726} [e] a long term uptrend {797-2145}. 

Volume increased---a little concerning in that it supports the recent pattern of up volume on down days and down volume on up days.  Breadth was negative.  The VIX (17.7) was up 9% finishing [a] right on its 100 day moving average one day after it re-set from support to resistance; I am shifting this indicator to neutral, awaiting follow through, [b] within a short term downtrend and [c] in intermediate term and long term trading ranges. 

The long Treasury was up again, ending above its 100 day moving average, still support; and within very short term, short term and intermediate term trading ranges. 

GLD was up, closing [a] above its 100 day moving average for the third day, reverting from resistance to support [b] very near the upper boundary of its a short term trading range, [c] within  intermediate and long term downtrends and [d] is still developing a very short term uptrend. 

Bottom line: stocks started working off their overbought position; so no need to read anything more significant in yesterday’s decline than that.   Further, in the absence of any meaningful technical damage, I think an attempt at challenging earlier highs a reasonable probability.  However, I believe that the fundamentals argue against buying stocks at current levels.
            Weakest sector rally causes split opinion (short):



            There were two datapoints reported yesterday: month to date retail chain store sales were improved from the prior week and the September small business optimism index was better than anticipated.  That is a change; let’s see if the good news can continue.

Unfortunately, there was no support for our better numbers from overseas: September Chinese imports and exports fell, the Russian finance minister downgraded his country’s 2015 economic growth forecast, September UK inflation declined and October German economic morale was down.  That is bad guys 4, good guys 0.

            ***overnight, September Chinese CPI rose less than expected while PPI fell 5.9%; September UK unemployment declined and the IMF increased its 2015/2016 GDP growth estimates for the UK.

            Are we already in a global recession (medium)?

            Research firm says Chinese banks nonperforming loan ratio (to equity) is six times higher than reported (medium):

Bottom line: yesterday’s the US economic data was upbeat (though nothing to make me stop work on lowering our 2015 economic forecast), the earnings reports were mixed but the international economic stats did not make great reading.  None of this would necessarily be concerning were it not for the elevated valuation of stock prices.  Indeed the combination of six weeks of lousy US economic numbers, an even longer string of poor international stats and declining earnings expectations coupled with the Averages being only 5% off their all-time highs, strikes me as a really bad risk/reward equation.

            Update on corporate earnings outlook (medium):

            Four warnings (medium):


   This Week’s Data

            Month to date retail chain store sales improved over the prior week.

            September retail sales rose 0.1%, in line; ex autos, they fell 0.3% versus expectations of -0.1%.

            September PPI was reported down 0.5% versus estimates of down 0.2%; ex food and energy, it was down 0.3% versus forecasts of +0.1%.


            Dividends point to an economic contraction (short):

            The Fed continues to struggle (medium):



            Defining ‘liberal’ (short):


            The new Silk Road (long):

            Russia sends its only aircraft carrier to Syria (medium):

                Iran sends more troops to Syria (medium):

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