Wednesday, December 9, 2015

The Morning Call--More downside in oil?

The Morning Call


The Market

The indices (DJIA 17568, S&P 2063) had another poor day.  The Dow ended [a] above its 100 moving average, which represents support, [b] right on its 200 day moving average, now support, [c] within a short term trading range {16919-18148}, [c] in an intermediate term trading range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and still within a series of lower highs.

The S&P finished [a] above its 100 moving average, which represents support, [b] right on its 200 day moving average, now support, [c] in a short term trading range {2016-2104}, [d] in an intermediate term uptrend {1975-2768}, [e] a long term uptrend {800-2161} and [f] still within a series of lower highs. 

Volume rose; breadth was negative.  The VIX (17.6) was up 10%, ending [a] below its 100 day moving average, now resistance, [b] above the upper boundary of its short term downtrend; if it remains there through the close on Thursday, the trend will re-set to a trading range, and [c] in intermediate term and long term trading ranges. 

The long Treasury was up fractionally, closing above its 100 day moving average for the second day; if it remains there through the close today, it will set as support.    TLT is within very short term, short term and intermediate term trading ranges.

            Doug Kass on MLP’s (short):

Oil fell again, ending below the lower boundary of its short term trading range for the second day; if it remains below this boundary through the close today, the short term trend will re-set to a down.

GLD was up slightly. It ended [a] below its 100 day moving average, now resistance and [b] within short, intermediate and long term downtrends. 

Bottom line: the volatility continues and the Averages continue to develop a series of both lower highs and higher lows, but nothing has really changed in the overall technical picture. 

Short term, traders are telling me that the recent weakness has been influenced heavily by year-end tax selling---and, in a year in which the Market has been flat but with big losers (think oil), that force will be stronger than it has been in the last three or four (up) years.  Consensus seems to be that this will continue to weigh on the Market for another week or so.  After that the much anticipated seasonal bias should kick in.  Whether that leads to a challenge of the upper boundaries of the indices long term uptrends remains the question.

Longer term, the numerous divergences below the Market surface along with our assessment that stocks are very richly valued, I believe argues against a successful challenge and for a decline to significantly lower levels.


            Yesterday’s US economic datapoints were negative: November small business optimism fell and month to date retail chain store sales were off significantly from the prior week.  These are secondary indicators so, by themselves, are not alarming; though clearly cumulatively they all add up and right now point to a weakening economy.

            Overseas, after a brief respite last week, the numbers returned to their months’ long negative trend: both Chinese November exports and imports were down; EU third quarter GDP was up 0.3% but less than in the second quarter; October UK manufacturing was down; and the Bank of France lowered its forecast for French fourth quarter GDP growth. The only bright spot was Japanese third quarter GDP which was up 1%.  Not to be repetitious but none of this is going help the growth prospects for the US.

            ***overnight, China allowed the yuan to drop to a four year low.

Bottom line: the economic numbers both here and abroad continue to suggest persistent weakness, especially in the rest of the globe.  However, that was not the focus of Street chatter yesterday.  Rather plunging oil prices has many investors worried; in particular as I noted above, because oil is threatening to break to new lows.  And now that most realize that lower oil prices are not good economic news, the consequences of a price of $20 a barrel---which is now the worst case Street forecast---are giving investors the willies.

Complicating the narrative, as I noted above, is year-end tax selling; and we know that there is not a lot of capital gains in the stocks of the oil sector.  So this selling could just be inflaming concerns and spawning visions of doomsday for the oil industry.  Ever the contrary opinionist, I think that the lows are somewhere in the near vicinity.  As you know, our Portfolios nibbled at CVX, XOM, and XLE during the Market sell off last August.  At the moment, I am looking for another entry point.  

The most important bit of advice I have at this point is to would use the Market strength to take some profits in winners and/or eliminating investments that have been a disappointment.
            HSBC’s top risks for 2016 (medium):

       Investing for Survival
            The advantages of not being a pro:
    News on Stocks in Our Portfolios

   This Week’s Data

            Month to date retail chain store sales fell sharply from the prior week.

            Weekly mortgage applications rose 1.2%, purchase applications were up 0.04%.


            Fed rate hike belies frailty in the economy (medium):

            The fallacy that devaluating your currency brings prosperity (medium):



  International War Against Radical Islam
            Saudi Arabia underwrites terrorism (medium):

            Iraq looking to cancel security agreement with US (medium):

No comments:

Post a Comment