Wednesday, November 4, 2015

The Morning Call--A challenge of the highs seems inevitable

The Morning Call


The Market

The indices (DJIA 17918, S&P 2105) continued to tip toe through the tulips yesterday.  The Dow ended [a] above its 100 moving average, now support, [b] above its 200 day moving average, now support, [c] above the upper boundary of its short term downtrend {17005-17718}; if it remains there through the close today, it will re-set to a trading range, [d] in an intermediate term trading range {15842-18295} and [e] in a long term uptrend {5471-19343}.

The S&P finished [a] above its 100 moving average, now support, [b] above its 200 day moving average, now support, [c] above the upper boundary of its short term trading range {2016-2104}; if it remains there through the close on Thursday, it will reset to an uptrend, [d] in an intermediate term uptrend {1950-2942} [e] a long term uptrend {800-2161}, [f] above its September highs, now representing support.

Volume declined; breadth was mixed.  The VIX (14.5) rose 3% (a little unusual for an up Market day),  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.
                I checked our internal indicator.  In a 157 stock universe, 72 were in intermediate term uptrends and 85 were in either intermediate term trading ranges (48) or intermediate term downtrends (27).  That is actually a more positive tally than I had expected, although the majority of stocks are still not in sync with the Averages.

The long Treasury was down, ending slightly above its 100 day moving average, still support, within very short term, short term and intermediate term trading ranges and right on the lower boundary of the developing pennant formation.  If it breaks down, it would suggest more movement to the downside.  Apparently, the bond guys are starting to consider a December rate hike a possibility.

GLD was down 1.5%, closing [a] below its 100 day moving average, now support; but if it ends below that MA through today, it will revert to resistance, [b] below the lower boundary of its short term uptrend; if it remains there through the close on Thursday, it will reset to a trading range, [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---and clearly the reverse is occurring.

Oil has been up 10% over the last six trading days, but is still below 100 day moving average and within its very short term and short term trading ranges.

Bottom line: the Averages continued to press to the upside, with seasonal factors providing a tailwind.  The odds of challenging their all-time highs and the upper boundaries of their long term uptrends continue to improve.  Although I still believe that those challenges, especially to the upper boundaries of the long term uptrends, will be unsuccessful.



            Yesterday’s US economic stats were mixed: month to date retail chain store sales were up versus the prior week, September factory orders fell and October light vehicle sales came in ahead of expectations.  The bad news is that (1) factory orders is a primary indicator and (2) before getting too jiggy about car sales, read this (medium):

            And this (short):

            Overseas, the news was spectacular if you are a QE aficionado: the Australian central bank left rates unchanged but said there was plenty room for more easing; and even better, Draghi was out trumpeting his dovish message that more QE is possible in December.

            ***overnight, EU services PMI were up less than expected, UK were better than estimates while Chinese were less than anticipated; the Chinese composite PMI was negative; Draghi endorsed a measure to insure safety of bank depositis.

Bottom line:  the story hasn’t changed---the economic news is mixed at best, the central bankers are promising more QE and equity valuations are at or near record highs.  Nothing about this has much logic in a long term investment sense.  Somewhere out there, the economy has to improve, stock valuation mean revert or investors acknowledge that QE hasn’t, isn’t and likely won’t work.  I am agonistic on which occurs; but I am not willing to maintain a heavy equity exposure until we know; because right now I have a two out of three chance of losing money.

I believe that anyone buying stocks at current valuations on more monetary easing is assuming an unnecessary and unacceptable level of risk.  Hence, 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.

            The data doesn’t matter---says you (medium):

            Doug Kass: 10 things I re-learned in October (medium):

            How much QE had helped Wall Street (medium):

            Update on third quarter earnings season (short):

            Paul Singer on the economy and the Market (medium):

       Investing for Survival
            Fundamentals are only half the story:

    News on Stocks in Our Portfolios
Becton, Dickinson (NYSE:BDX): FQ4 EPS of $1.94 beats by $0.04.
Revenue of $3.1B (+40.9% Y/Y) beats by $60M.

Emerson Electric (NYSE:EMR): FQ4 EPS of $0.93 misses by $0.04.
Revenue of $5.81B (-14.7% Y/Y) misses by $20M.


   This Week’s Data

            Month to date retail chain store sales were up versus the prior week.

            September factory orders fell 1.0% versus expectations of -0.9% and the August number was revised from -1.7% to -2.0%.

            October light vehicle sales came in at 18.2 million versus estimates of 17.7 million.

            Weekly mortgage applications fell 0.8% while purchase applications were down 1.0%.

            The October ADP private payroll report showed job growth 8,000 less than September versus estimates that it would be 15,000 less.

            The September US trade deficit came in at -$40.8 billion versus forecasts of -$41.1 billion.


            Is the US entering a recession (short):

            Who benefits from a sovereign debt crisis? (medium):



Interesting stats on the election from Intrade (short):

Another inconvenient truth (short):

  International War Against Radical Islam

 a challnge o

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