Tuesday, January 12, 2016

The Morning Call---A pause that refreshes

The Morning Call


The Market

The indices (DJIA 16398, S&P 1923) inched higher yesterday.  However, the Dow ended [a] below its 100 moving average, now resistance, [b] below its 200 day moving average, now resistance, [c] within a short term downtrend {16934-17667}, [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] below its 100 moving average, now resistance, [b] below its 200 day moving average, now resistance [c] in a short term downtrend {1949-2039}, [d] below the lower boundary of an intermediate term uptrend {2000-2990} for the fourth day;  it resets to a trading range {1867-2134}, [e] a long term uptrend {800-2161} and [f] still within a series of lower highs. 

January option expiration week (short):

Volume declined; breadth improved slightly.  The VIX was down 10%, ending [a] above its 100 day moving average, now support, [b] in a short term, intermediate term and long term trading ranges. 



The long Treasury fell 1%, closing above its 100 day moving average, now support and within very short term, short term and intermediate term trading ranges.

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

Bottom line: the S&P confirmed the challenge of its intermediate term uptrend.  The next support levels for the Averages are now 15842/1867.  Very short term stocks are oversold, so a bounce extending the yesterday’s paltry advance seems likely.  Nonetheless, a challenge of 15842/1867 also seems likely.  Let’s hope those support levels hold, because the next visible support is circa (14256/1576).



            No data either here or abroad yesterday.  In fact, there will be few US economic datapoints this week.  On the other hand, yesterday marked the beginning of fourth quarter earnings season---which is likely to be another bummer (third in a row).   I am not sure how much of that is priced in; but, at the least, I suspect there is little good news coming on that score.

            Overseas, the news was the continuing decline in the Chinese stock market but stabilization in the currency market.  Based on the performance in the US markets, I assume this means that investors are more focused on the yuan than on stock prices.  That said, many of the China experts that I listen to suggest that the yuan is still 10% overvalued, so that does not bode well for US stock prices.   

            Mohamed El Erian on China’s economic problem (medium):

            The current lack of transparency (medium):

            ***overnight, December UK industrial production fell, December Japanese consumer confidence rose slightly and 2015 Chinese auto sales were up 4.7%---the slowest rate of growth since 2012.

Bottom line:  investors got a rest from the carnage yesterday and that could extended based on how oversold the Market is at present.  However, this interlude may be just a function of the absence of news flow.  Clearly that is not going to last.  Given the trend in poor economic stats here and abroad, the recent break in multiple support levels and the potential for further (1) declines in the yuan, (2) negative earnings surprises and (3) explosive developments in the Middle East coupled with the still very generous valuation of the indices, a further decline in those Averages seems reasonable.

As I noted last week, the average stock is already down 20%, so the downside for the average stock is almost surely less than that of the indices.  That said, our Buy Lists contain only a few names; typically, as stocks approach a bottom those Buy Lists are highly populated.  So I think that it is still too soon to be buying.  Indeed, as part of our strategy, I have suggested that ‘buying the dip’ is likely dead. 

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 eliminating investments that have been a disappointment and (2) they lose the notion of ‘buying the dips’.

            The latest from John Hussman (medium):


   This Week’s Data

            The December small business optimism index came in at 95.2 versus expectations of 95.0.


            Are our ex-energy trade deficits a tell-tale sign? (medium):

            Nothing is ‘natural’ about the economy (short):



Quote of the day (short):

  International War Against Radical Islam

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