Wednesday, February 17, 2016

The Morning Call--Bad economic numbers still equal higher stock prices

The Morning Call


The Market

The indices (DJIA 16196, S&P 1895) made a second significant advance in as many days.  Volume was decent, breadth improved; and while volatility declined, it remains within very short term and short term uptrends and well above an upward trending 100 day moving average.

   The Dow ended [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 {16779-17507}, [c] back above the lower boundary of its intermediate term trading range {15842-18295}, negating last Thursday’s break, [d] in a long term uptrend {5471-19343}, [e] and still within a series of lower highs and right on the lower boundary of a very short term downtrend.

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 its short term downtrend {1894-1979}, [d] within a newly reset intermediate term downtrend {1796-2053}; however, because it is back above the prior lower boundary of the former trading range, we have to question whether the break was real or a head fake.  Follow through is the key, [e] in a long term uptrend {800-2161} and [f] still within a series of lower highs and within a very short term downtrend. 

The long Treasury was down.  I noted last week’s price spike in yesterday’s Chartology section and that the TLT was overextended to the upside, so some backing and filling would be expected.  We seem to be getting that.

Likewise, GLD experienced a day of consolidation.  But it remains within very short term and short term uptrends as well as above an upward trending 100 day moving average. 
Bottom line:  Friday and yesterday’s pin action were not unexpected, technically speaking.  Stocks were deeply oversold, so a bounce was logical.  Short term the levels to watch are (1) the lower boundaries of the indices’ very short term down trends and (2) the lower/former lower boundaries of their intermediate term trading ranges. 

            Have emerging market stocks bottomed? (medium)



            Yesterday’s economic news was not good: the NY Fed manufacturing index was negative and well below forecasts while homebuilder confidence was lower than expected.  Overseas, fourth quarter Japanese GDP was down 1.4% versus estimates of down 0.8% and January Chinese exports and imports declined more than projected.  In short, nothing positive.

            That said, bad (economic) news still seems to be good (Market) news at least to investors as they voiced hopes for more QE and negative interest rates.   Whether or not that was one of the proximate causes for the yesterday’s upbeat pin action, longer run, I continue to believe that more central bank experimental policy making will simply dig a deeper hole for their respective economies.

Jim Rogers on central bank monetary policies (3 minute video):

            Other news included an announced agreement between Russia and Saudi Arabia to freeze crude oil output if other OPEC members agreed.  I wish them luck.  In the meantime, if I am right on the economy, holding an already excessive level of supply constant in the face of declining demand is not apt to do a lot for higher oil prices.

            ***overnight, Iran declined to join in any hold on production.

Bottom line: another inauspicious start for economic data both here and abroad, providing still more support for the odds of a recession.  Meanwhile, investors are seemingly clinging to the hope that QE or some equally ill-advised monetary policy will somehow turn economic conditions around---even though to date those policies have done nothing but contribute to economic under performance. 

I am not suggesting that investors run for the hills.  But it does make sense to use the current rebound to take some profits in winners that have held up during recent decline.

            More problems for EU banks (medium):

       Investing for Survival
            How much do we as investors really know?
    News on Stocks in Our Portfolios

   This Week’s Data

            The February homebuilder confidence came in at 58 versus estimates of 61.

            Weekly mortgage applications rose 8.2%; but the more important purchase applications fell 4.0%.

            January housing starts dropped 3.8% versus expectations of being up 2.3%; building permits were flat versus forecasts of up 1.0%.

            January PPI was advanced 0.1% versus projections of down 0.2%; ex food and energy the number was up 0.4% versus and anticipated increase of 0.1%.


            Ed Yardini on China’s problems (medium):

            Wednesday morning humor (9 minute video):



  International War Against Radical Islam

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