Thursday, January 7, 2016

The Morning Call--Incoming

The Morning Call

The Market

Another rough day for the indices (DJIA 16906, S&P 1990).  The Dow ended [a] below its 100 moving average, which represents support; but if it remains there through the close on Friday, it will revert to resistance, [b] below its 200 day moving average, now resistance, [c] below the lower boundary of its short term trading range {16919-18148}; if it remains there through the close on Friday, it will reset to a downtrend, [c] in an intermediate term trading range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and has now made yet another lower high.

The S&P finished [a] below its 100 moving average for the third day, which now reverts to resistance, [b]  below its 200 day moving average, now resistance, [c] below the lower boundary of its short term trading range {2016-2104}; if it remains there through the close on Friday, it will reset to a downtrend,  [d] below the lower boundary of its intermediate term uptrend {1998-2791}; if it remains there through the close next Monday, it will reset to a trading range, [e] a long term uptrend {800-2161}, [f] and in a very short term trend of lower highs. 

Volume rose; breadth declined.  The VIX (20.4) was up 5%, ending [a] above its 100 day moving average, now resistance; if it remains there through the close on Friday, it will revert to support, [b] within short term, intermediate term and long term trading ranges. 

The long Treasury rose 1.3%, closing above its 100 day moving average, now resistance; but if it remains there through the close on Friday, it will revert to support.  It remains within very short term, short term and intermediate term trading ranges.

GLD was up 1.5%, still finishing [a] below its 100 day moving average, now resistance and [b] within short, intermediate and long term downtrends. 

Bottom line:  the only difference between yesterday and Monday is that even more key support levels are being challenged and the magnitude of the breaks are even larger.  As always follow through is key; all those challenges must be confirmed before getting too ‘beared up’.  If they do break, the only visible support is roughly 6-8% lower (15842/1867).   Plus the Averages will be confirming our worries about, the continuing development of a topping formation, the numerous Market divergences and our belief that stocks are very richly valued. 

            Global bear market has already begun (medium):

            Even financials are in trouble (short):



            This week’s economic data remains dismal, yesterday: weekly mortgage and purchase application were awful, both the PMI services index and the ISM nonmanufacturing index were disappointing and factory orders were down (though they were in line).   The positive news included a lower November US trade deficit and a surprisingly strong ADP private payrolls report.  While the latter is unquestionably a plus, it is nonetheless worrisome that both the service sector indicators were negative---the ISM index for the second month in a row.  Remember the economic bull case has been grounded in the argument that while manufacturing may be weak, services (1) have been strong and (2) they represent a much larger portion of the economy.  Clearly that notion must be questioned.

In addition, the latest FOMC minutes were released.  Three comments: the FOMC (1) did not have as much conviction in raising rates as many thought at the time [with the economic numbers as poor as they have been, how could it not been made with trepidation?], (2) nonetheless, mouthed the appropriate amount of happy talk about the economy [whistling through the graveyard] and (3) provided little ‘data dependence’ guidance defining the path to further rate hikes [small wonder].

            FOMC minutes

            Hilsenrath on the FOMC minutes (medium):

            Overseas, the Chinese allowed the yuan to decline even further, fueling the competitive devaluation race and perhaps indicative of new problems in the Chinese financial system---and on a not so positive technical note, the indices and the yuan have been highly correlated over the last year, i.e. lower yuan = lower US stock prices.

            Finally, under category of ‘this is all we need’ the North Koreans claimed that they had successfully tested a hydrogen bomb.  The media made a much bigger deal of this than I would have thought.  Number one, these clowns lie habitually; so we can’t be sure that they tested a hydrogen bomb.  Number two, they generally don’t act without the approval of the Chinese and I can think of no reason for the Chinese to want to start a nuclear war.  Number three, all that the North Koreans have really done is replace one kind of nuclear device with a more technologically advanced one.  Finally, if you are going to worry about some nut job detonating a nuclear device, worry about radical Islam.


(1)   the Chinese yuan continued to slide and stocks traded limit down,


(2)   Eurozone reported a number of upbeat economic stats: economic confidence, business climate index, industrial confidence and unemployment; retail sales were less than anticipated,

(3)   Iran accused Saudi Arabia of bombing its embassy in Yemen.

Bottom line:  the economy is not improving.  The data supports that notion.  And reading the FOMC minutes suggests that, the happy talk notwithstanding, the Fed has a pretty good idea of the same.  Not helping matters, energy prices continue to get whacked (no, Virginia, lower oil prices are not an unmitigated positive) and the declining yuan is not helpful for either the global economy (competitive devaluations) or the US stock market.

I am not suggesting that investors run for the hills.  I am suggesting that they use the Market strength to take some profits in winners and/or eliminating investments that have been a disappointment.

            George Soros is worried (short):


    News on Stocks in Our Portfolios

   This Week’s Data

            The December PMI services index came in at 54.2 versus November’s reading of 56.1.

            The December ISM nonmanufacturing index was reported at 55.3 versus expectations of 56.2

            November factory orders were down 0.2%, in line though down big from October.

            Weekly jobless claims fell 10,000 versus projections of a 15,000 decline.




The next step in government supervision of our lives? (medium):

  International War Against Radical Islam

            Hillary on Benghazi (6 minute video):

            Libya now in turmoil (medium):

            David Stockman on the House of Saud (medium and a must read):

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