Thursday, November 19, 2015

The Morning Call--Somebody's confused

The Morning Call


The Market

The indices (DJIA 17737, S&P 2083) did another moon shot yesterday.  The Dow ended [a] above its 100 moving average, which represents support, [b] back above its 200 day moving average one day after reverting to resistance; so I am going to leave it as support, [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] back above its 200 day moving average one day after reverting to resistance; so I am leaving as support, [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 fell dramatically; breadth was very positive.  The VIX (16.6) was down 11%, ending [a] back below its 100 day moving average {now resistance}; negating yesterday’s upside break, [b] back below the upper boundary of its a short term downtrend; negating yesterday’s upside break and leaving it in a downtrend 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 up slightly, ending [a] in a short term downtrend, [b] below its 100 day moving average, now resistance, [c] in intermediate and long term downtrends. 

The dollar continues its uptrend off its October lows, trading over its 100 day moving average and within very short term, short term and intermediate term trading ranges.

Bottom line: the Averages did a Titan III shot yesterday, on weak volume but nonetheless breaking that developing very short term downtrend.  They did so in the face of FOMC minutes released yesterday, reinforcing the probability of a December rate hike.  That was something of a surprise; although stock prices have now soared twice this week on ostensively bad news (Paris attacks on Monday, FOMC minutes yesterday).   In addition, the long Treasury and gold were up---not suggestive of rate hike (and you know how I much I respect the bond guys).

One explanation offered for yesterday’s pin action was that Market participants were enthused that the Fed felt the economy was strong enough to raise rates.  Perhaps, but surely they can read the newspapers and conclude that the economy is not that strong.  Further, the bond market’s performance did not support that view.

The most plausible explanation for this seemingly unusual behavior centers around strong seasonal factors.  Clearly, if this is correct, then the odds have gone up for a challenge of the Averages prior highs and upper boundaries of the indices long term uptrends before New Year’s---although as you know, I believe that those will be unsuccessful.  

I remain somewhat perplexed by the recent pin action.


            Yesterday’s US datapoints were mixed in quantity but negative in quality: weekly mortgage and purchase applications were up strong but October housing starts (primary indicator) fell three times more than expected.

               ***overnight, October Japanese exports fell 2.1% while imports were down 13.4%

            In addition, the Fed released the minutes from its latest meeting.  The two most important takeaways are:

(1) it was its intent in the FOMC meeting’s accompanying statement to signal that a December rate hike was likely, though the final decision was still ‘data dependent’.  Hogwash, its final decision is not ‘data dependent’, it is ‘Market dependent’; and right now, the Market is making that decision easy.  The only question is, will my thesis be correct that a transition to normal monetary policy will be bad for the Market,

(2) consensus was that both the US and global economies were improving. I don’t even know where to start on this statement.  In these pages I record the data from both here and abroad.  I have left nothing out; indeed, I have tried to include relevant anecdotal evidence.  Nowhere in those stats can I come up with a moniker like ‘improving’.  The closest I can come is that in two of the last twelve weeks the numbers have been mixed to positive.  Granted, those two occurred fairly close together; but even if they had been spectacular---which they weren’t---that ain’t ‘improving’.

            This from Fed mouthpiece, Hilsenrath (medium):

                Goldman’s take (medium):

                The ECB also released the minutes of its last meeting.  But little surprise as it had trumpeted more QE far and wide (short):

Bottom line: staying with the notion of Market schizophrenia which I mentioned yesterday, consider the last three trading days: Monday, stocks rally on Paris tragedy because it likely reduces the odds of a December rate hike; Tuesday, stocks are flat on a rumor of a bombing Germany; Wednesday, stock are up big on lousy housing data (primary indicator), a shootout in Paris and Fed minutes that reaffirm the likelihood of a December rate hike.

            That said, I try my best to separate Market movement from any specific event or datapoint.  In other words, there could be something else occurring, not obvious to me, that drove the pin action this week.  Or it could be just noise.  Certainly, either of those explanations would better suit the Market’s performance than the more obvious event connections that I suggested above.  But I will observe that the moment the Fed minutes hit the tape yesterday, stocks kicked on the afterburners.
Back to the news flow, the stats here and abroad are not indicative of an improving economic outlook, irrespective of what Yellen says.  Further, as I noted yesterday, ‘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---‘.

 But none of this is necessarily indicative of lower stock prices---as long as a poor economy, dramatically mispriced and misallocated assets and a more geopolitically unstable world are at least partially reflected in current prices.  But they are not.  In fact, if anything, prices appear to be discounting just the opposite.

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.

            Notes from Lance Roberts (medium):


   This Week’s Data

            Weekly jobless claims fell 5,000 versus expectations of -6,000.

            The November Philadelphia Fed manufacturing index came in at 1.9 versus estimates of 0.0.




Quote of the day (short):

  International War Against Radical Islam

            The cluelessness on US foreign policy (medium):

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