Thursday, December 3, 2015

The Morning Call---Yellen fantasizes, Draghi disappoints

The Morning Call


The Market

The indices (DJIA 17729, S&P 2079) sold off hard yesterday on multiple, disparate news events.  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}, [d] in a long term uptrend {5471-19343}, [e] and remained below the prior lower high.

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 {1971-2764} [e] a long term uptrend {800-2161}, [f] and, having closed above the prior lower high on Tuesday, it more than reversed that surge, leaving the S&P with a lower high. 

Volume fell; breadth was mixed.  The VIX (15.9) was up 9%, ending [a] below its 100 day moving average, now resistance, [b] in a short term downtrend {though near its upper boundary} and [c] in intermediate term and long term trading ranges. 
The long Treasury was up again, finishing above its 100 day moving average for a third day, thereby reverting from resistance to support.  It finished within very short term, short term and intermediate term trading ranges.  I would add that rates across almost all other fixed income asset classes rose (prices fell), suggesting a flight to quality---a subject that I have been dwelling on of late.

GLD fell 1.5% and ended [a] below its 100 day moving average, now resistance and [b] back below the lower boundary of its short term downtrend and [c] within intermediate and long term downtrends. 

Oil plunged 3.5% on news that there would be no production cut from the Saudi’s.  The dollar continues to trend upward, remaining in a very short term uptrend.

***overnight, there were rumors that Saudi Arabia is willing to consider production cuts if other OPEC members will do the same.

More dollar strength ahead? (short):

Bottom line: any positive technical developments on Tuesday were dramatically reversed yesterday, though volume fell and breadth was mixed where I would have expected it to be negative (a minus).  However, both indices are still in a tight trading range that has been building since mid-November, albeit at the lower end of the range (a plus).  In addition, there were a number of news events yesterday (Fed, crashing oil prices, the shootings in California) that seemingly impacted the pin action but whose effect could quickly dissipate (?).  In short, there are a lot of cross currents.  So the Market trend is uncertain; we will have to await follow through.
            The bull market is still alive (short):



            Yesterday’s economic data was mixed: weekly mortgage applications fell but purchase applications rose, the November ADP private payroll report recorded gains much higher than expected and third quarter nonfarm productivity was up in line while unit labor costs were double what was forecast (which has to make the Fed happy).

Overseas, Chinese stocks are soaring on expectations of additional Bank of China stimulus; November EU inflation was lower than anticipated which will help the ECB’s case for more QE (see below).
***overnight, EU November services and composite PMI’s came in below expectations while the Chinese November composite PMI was above.
                However, as far as economic news goes, it was a central bank day:
(1)   Yellen in a speech maintained that the economic data was sufficiently positive that the December rate hike was still on schedule.  Indeed, in a remarkable feat of sophistry, she argued that if the FOMC waited to raise rates, it would run the risk of being too late because the economy was growing so fast [cue the canned laughter].  If you want to read her entire speech, be my guest:

(2)   the latest Fed Beige Book was released.  Its basic message was that economic growth was modest  across all regions of the country,

(3)   as noted above, rumors out of China are that another round of QE is coming,

(4)   and last but certainly not least, Draghi is expected to unleash the mother of all QE’s today.

***overnight, ECB lowered rates another ten basis points but failed to institute the aggressive QE that had been promised,

            What happened the last time the Fed hiked rates as the US slid into recession (medium):

            The risk of divergent central bank policies (medium):

            Rate hikes and stock prices (short):

            Finally, another mass shooting in California held media attention for most of the latter part of the day and seemed to have a depressing effect on stock prices.

Bottom line: yesterday’s economic numbers were both mixed and overshadowed by other news.  The most important was central bank related.  Our own Fed chairperson provided yet another endorsement of a December rate hike and that was backed up by the positive economic anecdotal evidence out of the Fed Beige Book. 

Don’t ask me where these guys get their data because it certainly doesn’t match up with what is being reported by the various statistical bureaus.  But then, the Fed went down the rabbit hole three or four years ago; so it sees nothing as it appears. 

As you know, my thesis has been that the Markets are more likely to be impacted by a return to a more normalized monetary policy than the economy.  I remain convinced that if the Fed goes through with the December rate hike and the economy continues to perform as weakly as it has over the last three months, it will lose what credibility it has left and that will only exacerbate the impact on the Market.

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.

            Tracking dividend cuts and what it means (short):

            Thoughts on valuation (short):

            Peak margins and stock prices (short and a must read):

       Investing for Survival
            State by state tax guide for retirees:

    News on Stocks in Our Portfolios
Medtronic (NYSE:MDT): FQ2 EPS of $1.03 beats by $0.03.
Revenue of $7.06B (+61.6% Y/Y) in-line.

   This Week’s Data

            Weekly jobless claims rose 9,000, in line.


            Is the party over for oil? (medium):



The student body demands virus spreads (medium):

Barry Ritholtz on the proposed Highway Bill (medium):

Thursday morning humor (cartoon):

  International War Against Radical Islam

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