Friday, November 6, 2015

The Morning Call--A truly Abbott and Costello moment

The Morning Call


The Market

The indices (DJIA 17863, S&P 2099) continued to rest yesterday.  The Dow ended [a] above its 100 moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term trading range {16919-18148}, [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] in a short term trading range {2016-2104), [d] in an intermediate term uptrend {1950-2942} [e] a long term uptrend {800-2161}, [f] above its September highs, now representing support.

Volume was flat; breadth mixed.  The VIX (15.0) fell 2%,  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.

            More (medium):
The long Treasury was down fractionally, ending slightly above its 100 day moving average, still support, within very short term, short term and intermediate term trading ranges and marginally below the lower boundary of the developing pennant formation.  The close right on two boundaries (100 day moving average and the lower boundary of the pennant formation) puts the bond chart at a critical technical junction.  A bounce off these boundaries or break below them should carry some significance with traders and, more importantly, provide some insight as to exactly how serious the bond Market is taking the threat of a December rate hike.

GLD was down again and resumed its role as the ugliest chart in the universe.  Gold just can’t get out of its own way.  It closed [a] below its 100 day moving average, now resistance, [b] below the lower boundary of its short term uptrend for the third day, resetting the trend to a trading range, [c] in intermediate and long term downtrends. 

The dollar was strong again, finishing back above the upper boundary of its very short term downtrend, resetting it to trading range. It remains within short term and intermediate term trading ranges.  Unlike TLT, the move appears to anticipate a December rate hike (which would likely result in a stronger dollar).

Bottom line: the Averages ambled about yesterday, doing more consolidating after the recent spike but also reflecting investor caution ahead of today’s nonfarm payroll number. 

I continue to believe the odds still favor the indices challenging their all-time highs and the upper boundaries of their long term uptrends.  Although I still believe that those challenges, especially to the upper boundaries of the long term uptrends, will be unsuccessful.

Meanwhile, gold and the dollar appear to be reflecting the increased likelihood of a rate hike while the bond market seems a bit more ambivalent.  The nonfarm payrolls data could potentially resolve this bit of dissonance.



            Yesterday’s US economic data were mixed: weekly mortgage and purchase applications were weak as were October retail sales; however, the third quarter nonfarm productivity numbers were surprisingly strong.  So unless today’s payroll figure is a total bust, the stats this week will be the best in the past eleven weeks.

            Overseas, the data wasn’t as good: German October factory orders was awful and October EU retail sales were down 0.1%.  In other words, the US economy continues to get no support from abroad.

            ***overnight, German October industrial output fell 1.1% and the Greek parliament approved reforms stipulated by international lenders in order to receive additional bailout funds.

Bottom line:  so far investors have handled the threat of a December rate hike calmly.  Yesterday’s strong third quarter productivity number on top of an already upbeat week of the economic data had all the potential of confirming any fears investors may have regarding a tighter monetary policy; but didn’t.  

Given the past investor paranoia associated interest rate increases, why is everyone so sanguine now? (1) I was wrong about Yellen testing the Market---she was really doing it for show and everybody but me knows for sure that there is no rate hike coming or (2) there is a rate hike coming but I am wrong that a normalization of monetary policy will not have a negative impact on the stock prices or (3) the payroll number has always been the numero uno stat by which the investors gauge Fed policy and they are just waiting for 8:30 this morning or (4) the old standby---noise.  We will know more shortly.

***And now, gentlemen, for some Abbott and Costello (whose on first?) comic relief:  If any of you ever doubted that the Fed has absolutely no clue what it is (has been) doing, comes another Fed statement that says a bad jobs number is still good (economic) news meaning the Fed could  raise rates (bad Fed news) in December.  Confused?  So are they.  However, it may be the best indication yet that we are going to get higher rates in December.  (must read):

I believe that anyone buying stocks at current valuations 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.
            Bullish hopes, bearish signals (medium):


   This Week’s Data

            October retail sales were weak.

            October nonfarm payrolls rose 271,000 versus expectations of 190,000; unemployment declined to 5.0% from 5.1%.


            Saudi’s lower oil prices to Europe (medium):



Club for Growth on Trump (medium):

  International War Against Radical Islam

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