Wednesday, November 18, 2015

The Morning Call--Market schizophrenia

The Morning Call

The Market

The indices (DJIA 17489, S&P 2050) see sawed most of yesterday, then closed mixed (Dow up, S&P down).  The Dow ended [a] above its 100 moving average, which represents support, [b] below its 200 day moving average for the fourth day, thereby reverting to resistance, [c] within 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] above its 100 moving average which represents support, [b] below its 200 day moving average for the fourth day, thereby reverting to resistance, [c] in a short term trading range {2016-2104}, [d] in an intermediate term uptrend {1961-2754} [e] a long term uptrend {800-2161}. 

Volume rose; breadth was mixed.  The VIX (18.8) was up 4%, ending [a] back above its 100 day moving average {now resistance}; if it remains there through the close on Thursday, it will revert to support, [b] back above the upper boundary of its a short term downtrend; if it remains there through the close on Thursday, it will re-set to a trading range and [c] in intermediate term and long term trading ranges. 

The long Treasury rose, closing below its 100 day moving average, now resistance but within very short term, short term and intermediate term trading ranges.

GLD was down, ending [a] below the lower boundary of its short term trading range for a third day; thereby resetting to a downtrend, [b] below its 100 day moving average, now resistance, [c] in intermediate and long term downtrends. 

Bottom line: the Averages again couldn’t manage upside follow through to Monday’s pop; that keeps intact a very short term downtrend off the recent November 3rd high.  Not that this trend is worth betting money on; but it is holding in the face of a strong seasonal bias to the upside.  However, given this bias, I still think it likely that the prior highs and upper boundaries of the indices long term uptrends will get challenged before New Year’s---although as you know, I believe that those will be unsuccessful.  I remain somewhat perplexed by the recent pin action and continue to look for strong follow through in either direction.


Yesterday’s US economic stats showed little improvement: month to date retail chain store sales were actually up a tad from the prior week, but October industrial production was down versus forecasts of being up and the November housing index was lower than anticipated.

Overseas, October UK inflation was negative and its factory output down.  However, the headlines were full of rumors of bomb attack in Germany (later reported as unfounded); although they didn’t have quite the upbeat impact as the actual Paris tragedy.  You know that you are in a schizophrenic market when 129 dead spawns a 200 point rally but a rumored bombing attempt leaves the Averages flat on the day.
Bottom line: this week’s economic data are off to a very inauspicious start although there remains some very important numbers yet to come.  Meanwhile, overseas, the steady drumbeat of poor stats has been relentless.  At some point in time, it seems inevitable that this will start to show up domestically.  Indeed, maybe it already has and those two upbeat weeks in recent US data were just outliers.  

With respect to what is going on in Europe, I don’t care what stocks did on Monday, it is tough for me to believe that an intensification of the global war against radical islam is good for either stocks or the economy, irrespective of what the Fed does---the key being whether the latest attacks presage more of the same or they are just a one-time shot.

For the moment, I am hoping that the US economy is stabilizing---though hope is the operative word.  Unfortunately, it must contend with a weakening global economy, perhaps one in which national security is a growing problem.  However much faith I may have in US industry and labor’s ability to deal with adverse events, it may be too much to ask them to carry the bulk of the rest of the world’s economies.   Finally, Fed policy remains a headwind to growth.  I continue to believe that whenever the Fed starts to normalize monetary policy, Market pain will be incurred; and the longer it waits, the greater the pain.

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.

            Economic impact of the Paris attack (medium):

            Policy makers fiddle while the global economy burns (medium):

            The fall 2015 earnings expectations for 2016 (short):

            No earnings growth without buybacks (short):

            The famous final scene (medium):

            The latest from Bank of America (short):

        Subscriber Alert

            Yesterday, Airgas (ARG--$137) received a buyout offer from Air Liquide and the stock rose significantly.  ARG is on the Dividend Growth Buy List, though no stock has been purchased.  Given the large up move, it is being Removed from the Dividend Growth Buy List.

       Investing for Survival
            What isn’t possible (short)?

    News on Stocks in Our Portfolios
Home Depot (NYSE:HD): Q3 EPS of $1.35 beats by $0.03.
Revenue of $21.82B (+6.3% Y/Y) beats by $60M.


   This Week’s Data

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

            October industrial production fell 0.2% versus expectations of a rise of 0.1%; capacity utilization came in at 77.5, in line.

            The November National Association of Homebuilders index was reported at 62.0 versus estimates of 64.0.

            Weekly mortgage applications rose 6.2% while purchase applications were up 12.0%.

            October housing starts fell 11% versus forecasts of down 4%.




  International War Against Radical Islam

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