Thursday, January 14, 2016

The Morning Call--Even more oversold

The Morning Call


The Market

The indices (DJIA 16516, S&P 1938) took another beating yesterday, pushing further into oversold territory.  The Dow closed [a] below its 100 moving average, now resistance, [b] below its 200 day moving average, now resistance, [c] below the lower boundary of a short term downtrend {16927-17665}, [c] in an intermediate term trading range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] below its August 2015 low and [f] and still within a series of lower highs.

The S&P finished [a] below its 100 moving average, now resistance, [b] below its 200 day moving average, now resistance [c] below the lower boundary of a short term downtrend {1946-2034}, [d] in an intermediate term trading range {1867-2134}, [e] a long term uptrend {800-2161} [f] below its August 2015 low and [g] still within a series of lower highs. 

Volume rose (a pattern of low volume advances and high volume declines is starting to assert itself); breadth was lousy.  The VIX was up 11%, ending [a] above its 100 day moving average, now support, [b] in short term, intermediate term and long term trading ranges. 


The long Treasury was up another 1%, closing above its 100 day moving average, now support and within very short term (very near the upper boundary), short term and intermediate term trading ranges.

GLD increased ending [a] below its 100 day moving average, now resistance and [b] within short, intermediate and long term downtrends. 

Bottom line: so much for a bounce from an oversold condition; but now the Averages are in even deeper oversold territory; hence, I continue to believe that one is coming soon.  That said, the indices, having closed below their August 2015 lows, may first attempt a challenge of the 15832/1867 level since they are not that far away.  Whatever level that bounce comes from, this Market is ugly enough that the odds of a bear market occurring have grown substantially.


            Yesterday’s economic reports were mixed: weekly mortgage and purchase applications reversed last week’s terrible numbers, the US Treasury reported a much lower budget deficit than had been anticipated but the Atlanta Fed January year over year real GDP growth estimate declined (of course, they are peddling fiction).  In addition, the latest Fed Beige Book reflected the recent Fed happy talk, showing economic growth in all geographic areas.

Overseas, December Chinese trade data improved markedly; whether these numbers were manufactured remains an issue.

            At least one analyst believes that it is not indicative of an improving economy (medium and a must read):

                ***overnight, November Japanese core machinery orders fell 14.4%, the yuan is falling again and terrorists strike again---this time in Jakarta.

Bottom line: by volume yesterday’s economic reports were upbeat, though the Fed Beige Book and the Chinese trade numbers don’t reflect all the other information we have been getting.  Of course, they could potentially be pointing to a turn in the dataflow.  If so, we will know soon enough.  On the other hand, the Atlanta Fed’s most recent year over year measure of real GDP growth (which is based on reported data) clearly disputes the Beige Book which only reflects anecdotal evidence.

Further, (1) oil prices continue to fall and we are just a week away from Iranian production coming back on line---which certainly should not provide impetus for higher prices and (2) speaking of the Iranians [and I wish I weren’t], they keep poking their finger in our eye and with the aforementioned release of their oil production as well as the $150 billion of previously frozen assets, their capacity for mischief grows.

Iran’s propaganda victory (short):

With the Averages well above Fair Value, as long as I hear and read about how great the economy is, how the Fed has nailed the transition to tighter money and how misleading recent earnings reports have been, this is not a Market in which to be buying stocks, in my opinion.

I am not suggesting that investors run for the hills.  I am suggesting that on any rally that (1) they take some profits in winners that have held up during this decline and/or eliminate investments that have been a disappointment and (2) they lose the notion of ‘buying the dips’.

            Managing a trend change (medium and a must read):

            Great Market overview from Alhambra Partners (medium):

            The latest from Jeff Gundlach (medium):

       ETF Highlight

Nuveen Premium Income Muni 2 (NPM) seeks current income exempt from regular federal income tax. The secondary investment objective is the enhancement of portfolio value.
The fund invests approximately 93% of its assets in bonds and may be considered for investors seeking a Municipal - National strategy.  NPM has returned an annual rate of 6.10% since inception. More recently, the fund has generated a total return of 7.25% in the last five years, 4.32% in the last three years, and 19.18% in the last year. In the last five years, it has outperformed 58% of its peers. On a year to date basis, NPM has returned 16.90%.  Downside risk has been below average. This fund has a three year standard deviation of 10.3% and has had a low level of volatility in its monthly performance over the last 36 months. As NPM is a closed end fund, it has no front end or back end load.  The ETF Portfolio owns a full position in NPM.

       Investing for Survival

            Examining ‘flaws’ in ETF’s:   
    News on Stocks in Our Portfolios

   This Week’s Data
            The Atlanta Fed’s January year over year real GDP growth was projected at +1.8% versus the December reading of +1.9%.

            The December Treasury deficit narrowed significantly (-$14 billion versus -$64 billion).

            Weekly jobless claims rose 7,000 versus expectations of a decline of 2,000.

            December import prices fell 1.2% versus estimates of down 1.4%; export prices declined 1.1% versus consensus of down 0.5%.


            The Fed released its latest Beige Book which provided upbeat analyses from all districts.

            Which raises the question, who is the Fed talking to because it is not the railroads (medium):



Thursday morning humor:

  International War Against Radical Islam


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