Wednesday, January 6, 2016

The Morning Call--Richard Fisher's mea culpa

The Morning Call

The Market

Very little follow through yesterday by the indices (DJIA 17158, S&P 2016).  The Dow ended [a] right on its 100 moving average for a second day, which represents support, [b] below its 200 day moving average, now resistance, [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 has now made yet another lower high.

The S&P finished [a] below its 100 moving average for a second day, which represents support; if it remains below this MA through the close today, it will revert to resistance, [b]  below its 200 day moving average, now resistance, [c] right on the lower boundary of its short term trading range {2016-2104}, negating Monday’s break, [d] in an intermediate term uptrend {1998-2791}, [e] a long term uptrend {800-2161}, [f] and in a very short term trend of lower highs. 

            Counterpoint (sort of):


One more opinion (short):

Volume fell; breadth improved slightly.  The VIX (19.3) declined 6%, ending [a] right on its 100 day moving average, now resistance, negating Monday’s upside penetration, [b] within short term, intermediate term and long term trading ranges. 
The long Treasury dropped, closing below on its 100 day moving average, now resistance, negating Monday’s upside break.  It remains within very short term, short term and intermediate term trading ranges.

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

Bottom line:  despite a weak follow through, many of Monday’s challenges of key support/resistance levels were negated; that suggests more upside in the short term.  However, longer term, the continuing development of a topping formation, the numerous Market divergences and our belief that stocks are very richly valued remain big worries. 



            Yesterday witnessed a trade off in economic stats: month to date retail chain store sales improved but December light vehicle sales were a disappointment.

            On the monetary front, ex Dallas Fed chief Fisher made an astonishing mea culpa, supporting my thesis that the Market is overvalued. (5 minute video and today’s must watch)

            Overseas China reacted to Monday’s vicious sell off by flooding its banking system with liquidity; the December EU inflation rate was unchanged though below expectations.

            ***overnight, China devalued the yuan again,

Bottom line:  while the recent economic data may not be getting worse, it clearly is not getting better.  As I said yesterday, the best we can hope for is that the economy is stabilizing at a reduced rate of growth.  The global economy remains moribund---which is not going to help us.  And now Dick Fisher basically admits that Fed policy has led to asset misallocation and mispricing; mispricing as in Market overvaluation.  That overvaluation is in the process of rupturing internally as divergences multiply.

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.

            Valuations in the emerging markets (short):

       Investing for Survival

            No defense for closet indexing:   
    News on Stocks in Our Portfolios

   This Week’s Data

            Month to date retail chain store sales came in better than the prior week.

            December light vehicle sales were reported at 17.3 million units versus estimate of 18.1 million.

            Weekly mortgage applications fell 27% while purchase applications were down 15%.

            The December ADP private payroll report showed job gains of 257,000 versus expectations of 190,000.

            The November trade deficit was $42.4 billion versus forecasts of $44.4 billion,


            The impact of minimum wage (short):

            How the middle class is disappearing (short and you won’t believe the reason):

            Banks cutting credit facilities to shale producers (short):



Comments on Kasich’s record as governor (medium):

Quote of the day (short):

  International War Against Radical Islam

            Saudi Arabia or Iran (medium):
                How about neither?
            Will they drag us into a larger Middle East War?

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