Wednesday, November 11, 2015

The Morning Call--The Fed makes a new discovery

The Morning Call

The Market

There was little follow through by the indices (DJIA 17758, S&P 2081) from Monday’s big down day.  The Dow ended [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] in a short term trading range {16919-18148}, [c] in an intermediate term trading range {15842-18295}and [d] in a long term uptrend {5471-19343}.

The S&P finished [a] below its 100 and 200 day moving averages, both of which represent resistance, [b] in a short term trading range {2016-2104}, [d] in an intermediate term uptrend {1952-2744} [e] a long term uptrend {800-2161}. 

Volume fell slightly; breadth improved.  The VIX (15.3) was down 7%, ending [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. 

The long Treasury was up, but still finished below its 100 day moving average for the third day, reverting to resistance.  It did rebound off the lower boundary of its very short term trading range and remained within short term and intermediate term trading ranges. 

GLD declined again, ending [a] right on the lower boundary of its short term trading range [b] below its 100 day moving average, now resistance, [c] in intermediate and long term downtrends. 

Bottom line: stocks consolidated a bit yesterday.   So it appears that any fear of the December rate hike remains only surface deep.  That said, the rebound wasn’t all that impressive; so I think the Market could still go either way short term.  Longer term, equities are caught between two forces: one of the most powerful seasonal (up) times of the year and the discounting of a first Fed rate hike in six years.  I have no clue which direction stocks will head; however, given current extended valuations, even if the Averages challenge their all-time highs and the upper boundaries of their long term uptrends, I don’t believe that they will be successful.



            Yesterday’s US economic news was mixed to negative: the October small business optimism index was below expectations, month to date retail chain store sales were down substantially from the prior week, October import prices dropped much more than anticipated but export prices were down slightly less than estimates and, the good news, September wholesale inventories rose much more than forecasts while sales were up an equal amount.           So this week has started inauspiciously for the numbers.

            Not so overseas---October Chinese CPI and PPI were somewhere between disappointing and terrible; several members of the ECB said that there was growing consensus to push interest rates further into negative territory (O Joyous QE); Greece and its EU creditors are in a dispute over implementation of reforms delaying the latest tranche of bail out funds.

            ***overnight, more bad news out of China: October industrial production and urban fixed investment were below expectations while retail sales were better; in addition, the Financial Stability Board said that Chinese banks may need as much as $400 billion new equity in order to meet new global capital requirements; finally, for those who continue to believe that lower oil prices are an unmitigated positive:

            More negative anecdotal evidence---base metals now down 50% off 2011 highs (short):

            And one of the consequences of that (medium):

            Bottom line: the Fed and the odds of a December rate hike remained center stage, with the emotional pitch much lower than on Monday.  Of particular interest was another astounding discovery by the Fed (medium and a must read):

Notably, the Market seems to be weighing almost every news event as to its potential impact on the December rate.  Let’s hope that this doesn’t remain the case; otherwise the Holiday season are apt to be a bit more volatile than most of us would like. 

The most important point is that I would use the strength to take some profits in winners and/or eliminating investments that have been a disappointment.

   This Week’s Data

            Month to date retail chain store sales dropped considerably from the prior week.

            September wholesale inventories rose 0.5% versus expectations of up 0.1%; sales also rose 0.5%.


            Questioning the odds of a December rate hike (medium):

            More on student loans (medium):



Rubio and the sugar lobby (medium):

The latest on immigration (medium):


            Portuguese government falls (medium):

1 comment:

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