Monday, December 14, 2015

The Morning Call--Has the top finally been made?

The Morning Call


The Market

       Monday Morning Chartology
            The S&P is challenging multiple support levels: (1) it is below its 200 day moving average for the third day; if it closes below this MA today, it will revert from support to resistance, (2) it is below its 100 day moving average; if it trades there through the close on Tuesday, it will revert from support to resistance, (3) below the lower boundary of its short term trading range; if it trades there through the close on Tuesday, it will re-set to downtrend. 

It is now taking dead aim at the lower boundary of its intermediate term uptrend (1980)---which is the first but by far the most significant support level.  If the S&P breaks that level, I think that this will be the sign that the top has been made.  Speaking of which notice how the Market seems to be rolling over, as the S&P is now in a series of lower highs.  That whole ‘topping’ formation which dates back to last December has a base at 1970---the second support level that I can see.  The next support level is the August low (1867).  

Stock performance in December options expiration week (short):

I am not suggesting that any of the above challenges will be successful; but I am saying that if they are, then the Averages likely have a long way to go on the downside.

            Clearly a good week for bonds.  I believe that it represents the rising probability of a recession and the demand for a safe haven trade.

            Does this remind of another chart that we have been following (see below)?

            Only slightly worse than oil.

            The VIX has now risen to the point where its short term downtrend has re-set to a trading range and its 100 day moving average has reverted to support from resistance.  Also notice that the 100 day moving average is trending up.  None of this is a plus for stocks.


            Last week was a tough week for economic data: above estimates: weekly mortgage and purchase applications and November PPI; below estimates: October consumer credit, November small business optimism, month to date retail chains store sales, weekly jobless claims, October wholesale and business inventories and sales, November consumer sentiment, November US export and import prices; in line with estimates: November retail sales and sales ex autos.  That makes twelve down weeks in the last fifteen.  The only bright spot is that November retail sales, the only primary indicator of the week, was neutral. 

            Overseas, it wasn’t much better: negatives: November Chinese exports and imports, third quarter EU GDP, October UK manufacturing, German inflation and the Bank of France lowered its fourth quarter GDP estimate for France; positives: third quarter Japanese GDP.

            Finally, a third high yield fund bites the dust (medium):

            Goldman tries to explain the problem (medium):

            So does Credit Suisse (short):

            The big question this week is, what does the Fed do?  Most investors have been assuming a rate hike; but most have been drinking the same ‘the economy is just great’ Kool aid as the Fed.  Crashing oil prices, chaos in the high yield bond market and plunging stock prices may be prompting a rethinking of that scenario---because, we know the Fed has been targeting the Markets and not the economy.  Will the Fed to waiver?  I am not sure that the Fed hasn’t reached the point that it has no good options, only bad ones. So it may not matter.  The other question is, do the Markets know?

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