Tuesday, November 10, 2015

The Morning Call--the odds of a December rate hike keep climbing

The Morning Call


The Market

The indices (DJIA 17730, S&P 2078) experienced their biggest down day in over a month.  It is tough to tell if that is a one off or presages further downside---but clearly we will know soon enough. Whatever, not much changed in the current technical picture.  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 increased slightly; breadth was awful.  The VIX (16.5) was up 15%, but still ended [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 down again, ending below its 100 day moving average, still support; but if it trades there through the close today, it will revert to resistance.  It closed right on the lower boundary of its very short term trading range and within short term and intermediate term trading ranges. 

GLD rebounded, bouncing off the lower boundary of its short term trading range---the first hopeful sign in a long time.  But I have no reason to believe that it portends better performance.  It remained [a] below its 100 day moving average, now resistance, [b] in a short term trading range, [c] in intermediate and long term downtrends. 

Bottom line: hawkish comments from one of the Fed’s most dovish regional bank chiefs (see below) seems to have put additional weight on stock prices as the realization grows that the Fed really and truly is finally going to raise rates.    I noted on Saturday that the Market reaction to date had been anything but a ‘taper tantrum’.  Judging by yesterday’s performance that might not last; but it will take a lot more than one day’s decline to match previous occurrences.  Of course, yesterday pin action could have been nothing but noise. This is one of those wait and see moments.

            Stocks year end performance is a seventh year of a presidential term (short):



            No US economic news yesterday; and even if there had been, it would likely have been ignored.  Investor focus remained on the odds of a December Fed rate hike which got a boost from a somewhat unexpected source---hawkish comments from the dovish head of the San Francisco Fed.  This may have triggered one of those ‘ah ha’ comments for investors and led to yesterday’s down draft in the stock and bond markets. 

Overseas, the news is not improving: October Chinese exports fell while imports dropped at three times that rate and the OECD lowered its global growth estimates for 2015 and 2016.  There was one bit a positive news: German exports were better than expected.

            ***overnight, October Chinese CPI rose less than anticipated while PPI was down for the 44th straight month; several members of the ECB said that there was growing consensus to push interest rates further into negative territory; Greece and its EU creditors are in a dispute over implementation of reforms delaying the latest tranche of bail out funds.

Bottom line: the December rate hike scenario received another bump yesterday and that seems to have been enough to get the kind of reaction that I had been anticipating.  Of course, one day does not a trend make; plus the Market is entering its best season historically.  So it is way too soon to know if the pin action was just noise or reflected a delayed realization that rates are going up. 

I would note that the bond market exhibited the same tendency as the stock market, i.e. not much reaction to Yellen’s initial hawkish statement, then gradually picking up steam to the downside.  I tend to have more confidence in the bond guys bets than stock investors.  So for the two markets to act in sync suggests that everyone wrote off the Yellen comments then, when the supporting chorus joined in, began to take a rate hike more seriously.  But as I said above, we have to wait for further reaction to know whether yesterday’s decline should be taken critically.

I would use the strength to take some profits in winners and/or eliminating investments that have been a disappointment.
            The latest from John Hussman (medium):

            Update on third quarter earnings season (medium):


   This Week’s Data

            The October small business optimism index was reported at 96.1 versus expectations of 96.4.

            October import prices fell 0.5% versus estimates of down 0.1%; export prices declined 0.2% versus forecasts of down 0.3%.


            Goldman thinks this expansion can last another four years (medium):



More on the student loan problem (medium):

Free speech in America (medium):


            More on the political/economic problems facing Portugal (medium):
            Update on Greece (medium):

            The oil war (medium):

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