Friday, October 16, 2015

The Morning Call---Nothing matters but QE

The Morning Call


The Market

The indices (DJIA 17141, S&P 2023) attacked the September highs for the second time yesterday; though to date little has changed in the technicals.  The Dow ended [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] in a short term downtrend {17076-17792}, [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 {1986-2048}, [d] in an intermediate term uptrend {1935-2728} [e] a long term uptrend {797-2145}. 

Volume increased---a positive after the recent period in which stocks advanced on declining volume.  Breadth was strong.  The VIX (16.0) plunged 11%  finishing [a] back below its 100 day moving average, which I am leaving on neutral, awaiting more follow through, [b] within a short term downtrend and [c] in intermediate term and long term trading ranges. 
The long Treasury was off slightly, ending above its 100 day moving average, still support; and within very short term, short term and intermediate term trading ranges. 

GLD declined, but still closed [a] above its 100 day moving average, now support [b] above the upper boundary of its a short term trading range for the second day; if it remains there through the close today, it will re-set to a short term uptrend, [c] above the upper boundary of its intermediate term downtrend for a second day; if it remains there through the close next Monday, it will re-set to an intermediate term trading range and [d] within a long term downtrend.  If GLD can successfully challenge both its short and intermediate term trends, I will view that as a pretty good sign that a bottom is in.

The dollar rose back above the lower boundary of its short term trading range, negating yesterday’s break.  It remained below its 100 day moving average and within an intermediate term trading range.

Bottom line: stocks had worked off enough their overbought position to give them room to move up again; and move up they did.  The S&P closed right on its September high.  If it breaks through this boundary, then I think the odds of a challenge of its all-time high go up considerably.  This might be a good set up for a nimble trader; however, given the fundamentals and disparity between current prices and our Fair Values, it is not a place for investors.

Gold, which didn’t do much yesterday, appears to be on the cusp of successfully challenging three resistance levels (100 day moving average, upper boundaries of its short and intermediate term trends).  If successful, it certainly suggests that it has finally bottomed.  If that occurs, I will likely nibble. 
            The primary trend matters (short):



            Yesterday’s US economic news was mixed to negative.  The good news was that weekly jobless claims were lower than expected.  The mixed news was the September CPI numbers.  The bad news was the October NY and Philly Fed manufacturing indices as well as the September US budget surplus.  In addition, yesterday’s earnings reports were anything but inspiring.

            ***overnight, Fitch downgraded Brazil’s credit rating and India reported its September import and exports were both down over 25% year over year.

            None of this mattered because once again a dovish Fed captured the hearts and souls on investors.  In this particular case, an article by Fed mouthpiece John Hilsenrath suggested that a rate hike was off the table for 2015---which was aided by comments from global bankers advocating more QE.  That seemed to kick in the stock buying afterburners; and the rest, as they say, is history.

Bottom line: poor US economic data---not a problem; lousy international economic stats---not a problem; disappointing earnings reports---not a problem; an easy Fed, pursuing a policy with virtually no redeeming qualities and few visible affects other than the gross misallocation of asset investments and prices---a twenty one gun salute. 

What is wrong with this picture?   Do investors believe that no matter how poorly the economy/corporate earnings perform as long as the Fed is easy, nothing else matters?  That makes no sense.  True they may think that the economy is just bad enough to keep the Fed on the sidelines but good enough to avoid recession.   But that is a very fine line to walk, especially with stocks 5% off their all-time highs.  I continue to believe that fundamental risk/reward equation is very unattractive.


   This Week’s Data

            The October Philadelphia Fed manufacturing index was reported at -4.5 versus expectations of -1.0.

            The September US Treasury budget surplus was $91.1 billion versus estimates of $95.0 billion.


            The last thirty years of economic history is about to change (medium):

            Update on big four economic indicators (medium):




            Update on Chinese actions in the South China Seas (medium):

            Turkey shoots down drone of unknown origin (medium):

                Syrian, Iranian, Russian assault on Syria’s largest city begins (medium):

No comments:

Post a Comment