The Morning Call
10/27/15
The
Market
Technical
The indices
(DJIA 17623, S&P 2071) took a rest yesterday. The Dow ended [a] above its 100 moving
average for the third day, reverting from resistance to support, [b] above its 200
day moving averages, which now represents resistance; if it remains there
through the close on Wednesday, it will revert to support, [c] in a short term
downtrend {17036-17751}, [d] in an intermediate term trading range
{15842-18295} and [e] in a long term uptrend {5369-19241}.
The S&P
finished [a] above its 100 moving average for the third day, reverting from
resistance to support, [b] above its 200 day moving average for the second day,
which now represents resistance; if it remains there through the close on
Wednesday, it will revert to support, [c] above the upper boundary of its a
short term downtrend for the third day, re-setting to a trading range {2016-2104},
[d] in an intermediate term uptrend {1939-2731} [e] a long term uptrend {797-2161},
[e] back above its September highs, now representing support.
Market
performance in November and December following a strong October (short):
Volume was down
as was breadth. The VIX (15.3) was up 6%,
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
fractionally, 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: with
the Averages back in extremely overbought territory and with two lousy economic
reports, I expected a bigger retreat in prices than we got yesterday---yet
another sign that momentum and support remain.
In addition, the relative benign pin action allowed the resetting of
multiple resistance levels to more positive readings. So to me, the balance of evidence suggests
more upside for the Averages, likely challenging their all-time highs and upper
boundaries of their long term uptrends. Although
I continue to believe those challenges will be unsuccessful.
Fundamental
Headlines
Two
US datapoints were released yesterday; September new home sales fell
significantly and the October Dallas Fed manufacturing index was down more than
twice what was expected. Clearly not
great numbers; and a bit disappointing after last week’s positive dataflow. Other US development included:
(1)
the FOMC meets this week starting today and wrapping up
on Wednesday. I expect nothing but the
usual lengthy ‘on the one hand/on the other hand’ bulls**t followed by the
decision to do nothing. Got to keep that
Market happy.
Bernanke’s myth of a great
depression (medium):
More QE and higher stock prices
(medium):
(2)
it also looks like we will get a budget deal/debt
ceiling expansion combo this week. I
haven’t spent much time on this because I assumed that it would occur [the
evening news cycle notwithstanding] and that it would look the same as every
other deal that has been foisted on the taxpayer in the last two decades---which
is to say, more and more and more spending with no reform of any kind---which
is one of the reasons the US economy is in the miserable state that is.
***overnight,
it looks like the deal has been consummated.
Overseas,
one minor stat was released: October German business morale fell slightly.
***overnight,
third quarter UK GDP growth slowed from the second quarter rate,
Bottom line: while
this will be a very busy week for economic releases, we are off to a very
inauspicious start. Of course, (1) the increasing
odds of a budget deal, takes the worry of a government shutdown off investors’
minds; although longer term, it represents our ruling class’s habitual fiscally
irresponsible behavior and does nothing to improve our economic growth
prospects. (2) likewise, the assumed continued
temerity of the Fed to upset the Markets keeps investors everywhere feeling
warm and fuzzy. As you can probably guess,
I don’t see anything positive about either; but so far, mine has been the wrong
take.
That said, I would
not chase stock prices at these levels.
Indeed, I would use the strength to take some profits in winners and/or
eliminating investments that have been a disappointment.
Update
on this earnings season (short):
Economics
This Week’s Data
September
new home sales fell 11.5% versus expectations of down 0.5%,
The
October Dallas Fed manufacturing index came in at -12.7 versus estimates of
-6.0.
September
durable goods orders fell 1.2% versus forecasts of -1.0%; in addition, August
was revised down from -2.0% to -3.0%. Ex
transportation, the September number was -0.4% versus consensus of -0.1%;
revised August figures went from 0% to -0.9%.
Other
China’s
raging bond bubble (medium):
The
trend in Chinese consumption (medium):
Politics
Domestic
International
Update
on progress (or the lack thereof) in Greece (medium):
China/US faceoff in South
China Sea---what could go wrong? (medium):
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