Tuesday, December 1, 2015

The Morning Call---Off to another rough start

The Morning Call

The Market

The indices (DJIA 17719, S&P 2080) once again failed to challenge the mid-November high---appearing to have made a lower high.  That said, the downside follow through has been anemic; so it is not clear to me in which direction the next move will be. The Dow ended [a] above its 100 moving average, which represents support, [b] above 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} and [d] in a long term uptrend {5471-19343}.

The S&P finished [a] above its 100 moving average, which represents 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 {1969-2762} [e] a long term uptrend {800-2161}. 

Volume rose; breadth was flat.  The VIX (16.3) was down 7%, ending [a] below its 100 day moving average, now resistance, [b] in a short term downtrend and [c] in intermediate term and long term trading ranges. 

Update on margin debt (medium):

The long Treasury rose, breaking above its 100 day moving average; if it remains above that MA through the close on Wednesday, it will revert from resistance to support.  It finished within very short term, short term and intermediate term trading ranges.

Tell tail signs the credit market is tightening (this is a bit long but a must read.  It is also a great example of why I think the bond markets are a better reflection of economic activity than the stock market):

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

The dollar continues strong, finishing within a very short term uptrend.

Bottom line: the bulls and bears have found another battleground.  The bad news is that it is below a lower high; the good news is that the trading range has been fairly tight, so there is no discernable price breakdown. 

I still think that the strong seasonal bias favors the odds of a challenge of all-time highs, at the least---crappy monetary, fiscal and geopolitical news notwithstanding.  That said, I remain somewhat confused by the pin action in the overall markets: stocks flat, TLT up, the dollar strong and gold down.  There is nothing to indicate a consistent appraisal of a tighter or easier Fed or a tighter or easier ECB or a growing or slowing economy.



            The economic datapoints are off to another inauspicious start for the week: the November Chicago PMI was rotten, October pending home sales were very weak and while the Dallas Fed manufacturing index was better than expected, it was still negative.  As for anecdotal evidence, Black Friday sales were disappointing; but Cyber Monday sales were strong.

            ***overnight, this is first time we have had solidly positive economic news from abroad in a long time: November Chinese manufacturing PMI was at a three year low while the services PMI was up slightly; November Japanese and EU Markit manufacturing PMI’s were up; EU jobless rate was down; UK banks passed the latest bank stress test.

            There was one really good piece of news: the Fed adopted measures to curb its emergency lending power, including the ability to offer below Market rates.  This is yet another step to avoid the bail out  another ‘too big to fail’ bank and will hopefully further improve the public’s confidence that (1) the US financial system is increasingly sound and (2) the game isn’t rigged for the big boys.  I know that I have laid my fair share of hot tongue on the Fed for the gross mismanagement of monetary policy; but kudos for this move.

Bottom line: if the economic dataflow ends this week as it has started, then it will be the fourth down week in a row and the twelfth out of the last fourteen. Overseas, the numbers are not much better, though yesterday’s stats were definitely upbeat.  Unfortunately, they could get worse, if the Paris bombings/immigration problem have a depressive effect on EU economic activity.  On top of that, Draghi is promising a blockbuster QEII at the upcoming ECB meeting and Japan says it will enact a fiscal stimulus program to go along with its QEInfinity policy---both of which are a result of weak to no growth in their respective economies.

The longer this goes on, the more ridiculous the Fed is going to look when it raises rates because (it says) the economy is improving.  Of course, the Market remains at elevated levels and as long as it continues, then the Fed will likely stay committed to the hike.   I have no clue what Janet is thinking about; but I don’t want to be heavily invested when we all find out.

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.

            Valuations as seen by the optimist (medium):

            Counterpoint (medium):

            And (medium):


   This Week’s Data

            The November Chicago PMI came in at 48.7 versus expectations of 54.0.

            October pending home sales were up 0.2% versus estimates of +1.0%.

            The November Dallas Fed manufacturing index was reported at -4.9 versus forecasts of -11.0.


            Cyber Monday sales were up 12%.



  International War Against Radical Islam

No comments:

Post a Comment