Tuesday, October 27, 2015

The Morning Call--the numbers turn negative again

The Morning Call


The Market

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.


            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):


   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%.


            China’s raging bond bubble (medium):

            The trend in Chinese consumption (medium):




            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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