Friday, January 29, 2016

The Morning Call---With the Fed meeting over, we can now focus on another central bank

The Morning Call


The Market

The indices (DJIA 16069, S&P 1893) made yet another big move yesterday, this time up.  The Dow closed [a] below its 100 day moving average, now resistance, [b] below its 200 day moving average, now resistance, [c] below the lower boundary of a short term downtrend {16841-17585}, [c] within 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 day moving average, now resistance, [b] below its 200 day moving average, now resistance [c] below the lower boundary of a short term downtrend {1918-2008}, [d] in an intermediate term trading range {1867-2134}, [e] in a long term uptrend {800-2161}  and [f] still within a series of lower highs. 

Volume was lower (the Averages back in the pattern of low volume advance and high volume declines); breadth was much improved.  The VIX was down 3%, ending [a] above its 100 day moving average, now support {though the average is trending down, which would be a plus for stocks} and [b] in short term, intermediate term and long term trading ranges. 
The long Treasury was up on good volume, finishing above its 100 day moving average, now support and within short term and intermediate term trading ranges.

GLD declined, but still ended [a] above its 100 day moving average for the third day, reverting from resistance to support {however, the average is trending down, which is not supportive of this reversion} and [b] within short, intermediate and long term downtrends.

Bottom line: the indices continued a high volatility see saw action but within in a narrow range: ‘it would appear that the Averages are now in a testing area where they have lost downside momentum, can’t muster much to the upside but the volatility remains.  These are the times to do nothing except watch for follow through.  To the upside, the indices need to successfully challenge one or more resistance level (upper boundary of their short term downtrend, their 100 day moving average or the first major Fibonacci retracement level [circa S&P 1928]) before we can say anything about a meaningful rebound.  On the downside, 15842/1867 are major support.  Any failed test of those levels, the Averages are looking at a serious fall before they find any support.  Caution.’

            NYSE margin debt declines further (medium):



            US economic stats turned negative again yesterday:  weekly jobless claims fell more than expected; however, December pending home sales rose, the January Kansas City Fed manufacturing index and December durable goods orders were all disappointing.

Overseas, IMF and World Bank officials headed for Azerbaijan to discuss an emergency loan package in what could be the first bailout stemming from lower oil prices.  On a more positive note, rumors flew that OPEC and non OPEC members maybe planning a meeting to discuss production cuts.  Away from oil related news, the UK fourth quarter GDP was up but at the slowest annual rate in three years, EU economic confidence was the lowest in five months and China continued to inject liquidity into its financial system in an attempt to slow declining stock prices.

***overnight, both France and Spain posted better than expected 2015 GDP growth.  In addition, the rumored OPEC/non OPEC meeting (see above) to discuss production cuts turned out to be just that---a rumor.  And finally, the Bank of Japan stunned the world, introducing a negative interest rate policy (can you say currency war?).

Bottom line: with another FOMC clown show out of the way, attention can get back to the numbers---and they weren’t that encouraging.  In the US, this week’s economic dataflow has gone from slightly positive to slightly negative.  However, we will see a number of meaningful stats released today; and they will likely determine how this week’s data in aggregate performs.  Whatever the outcome, the trend of the last five months will remain negative.

Overseas, the stats were negative; and that has been going on months and months. China continues to pump money into the system to stem the carnage in its stock market.  It also fired its head of government statistics, aka liar in chief.  I am not sure what that means.  Hopefully, it is a sign that the Chinese government is prepared to get honest about its economy with the rest of the world---‘hopefully’ being the operative word. 

The central banks continue to attempt to assuage nervous Market under guise of helping their economies.  At the moment, they seem to be failing on both counts.  As you know, my opinion is that as long as QE is their strategy that failure will persist.

With regard to oil, whose price action has been having some impact on stock prices lately, we got good news and bad news yesterday.  The bad news is that falling oil prices may be claiming their sovereign default (Azerbaijan); the good news is that those declining oil prices may be hurting the producers so much (or not) that production cuts could be under consideration.

Finally, stock prices are overvalued even in the absence of all of the above.  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’.

            Data on the current earnings season (short):

   This Week’s Data

            December pending home sales rose 0.1% versus expectations of up 0.8% while the November report was revised down.

            The January Kansas City Fed manufacturing index came in at -9, flat with a downwardly revised December report.

            Fourth quarter GDP rose 0.7% versus estimates of up 0.9%.

            The November US trade deficit was $61.5 billion versus forecast of $60.1 billion.


            An interview with Martin Feldstein (medium):

            Manufacturing matters (medium and a must read):

            China’s debt to GDP ratio is getting out of hand (medium):



  International War Against Radical Islam

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