Thursday, February 18, 2016

The Morning Call---The Fed confused as ever

The Morning Call


The Market

The indices (DJIA 16453, S&P 1926) made a third significant advance in as many days.  Volume fell, breadth improved; and while volatility declined, it remains within very short term and short term uptrends and well above a flattening 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]  above the lower boundary of its intermediate term trading range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and still within a series of lower highs and but above 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] sufficiently above the former lower boundary of its intermediate term trading range {1867-2134}, I am resetting those boundaries to a trading range as function of the distance element of our time and distance discipline, [e] in a long term uptrend {800-2161} and [f] still within a series of lower highs but above the lower boundary of a very short term downtrend. 

How much of this advance is short covering? (short):

Short term rebounds (short):

The long Treasury was down.  It ended [a] within its short and intermediate term trading ranges, [b] well above its upward trending 100 day moving average but [c] below the lower boundary of a very short term uptrend; if it closes there today, the trend will be voided. 

GLD halted its recent decline, remaining within very short term and short term uptrends as well as above an upward trending 100 day moving average. 

Bottom line:  the current three day advance has been strong enough that minor resistance levels (very short term downtrends) are being successfully challenged.  More important, it has resulted in the voiding of the recent break in the S&P intermediate trading range.  In addition, if it continues to rise, it is setting up the possibility for the Averages having made a double bottom at circa 15500/1812.  On the other hand, the trend since May 2015 of a series of lower highs is still intact though the indices are getting close (S&P 1950) to a challenge.  These levels are what I am watching on the upside along with the lower boundaries of the intermediate term trading ranges on the downside. 
            The latest from Doug Kass (medium and a must read):



            Yesterday’s US economic data were mixed to negative: weekly mortgage applications rose but the more important purchase applications were down, January housing starts were down versus expectations of an advance, January PPI was hotter than expected (an argument for further Fed rate hikes), while month to date retail chain store sales were slightly better than forecast and January industrial production was surprisingly upbeat.  So stats were negative by volume but were a wash between the primary indicators (housing starts and industrial production).

            ***overnight, Japanese January exports declined for the fourth month in a row; Chinese January PPI fell 5.3% year over year (47th month in a row), while CPI was up 1.8% but below expectations; the Organization for Economic Cooperation and Development lowered its 2016 global GDP outlook, mentioning Brazil, Germany and the US as slowing.

            The Fed released the minutes from its January FOMC meeting.  As usual, they were a bit confusing if only because the Fed, itself, is confused.  The bottom line is that the FOMC is concerned about more pronounced downside risk, especially with regards to the global economy and the securities markets; but not enough to do anything about it.       

            ***last night, St. Louis Fed chief Bullard  said that it would be ‘unwise’ to continue raising rates and hinted that more QE could be forthcoming ‘if needed’.

            Here is a summary as well as the complete text pf the minutes:

                And this from Fed whisperer Hilsenrath (short):

            Central banks face a credibility test (medium):

            A view of Japanese QE (medium and a must read):

            Overseas, Iran said that it would ‘support’ an oil production ‘ceiling’.

            More on oil prices (short):

Bottom line: nothing in the economic numbers to indicate that the US isn’t heading into recession though the positive industrial production stat suggests a controlled rate of decline.  Meanwhile, the Fed continues to demonstrate its ineptness, feigning confusion over the future course of rate hikes.  Explain to me how smart this group of highly paid academicians are when they kept moving their economic goal posts (unemployment and inflation) time and again in order to not raise interest rates and then raise them at virtually the exact moment that the economy is rolling over or, at least, hitting stall speed.  The good news is that at least we are not Japan or China---yet.  Investors may continue to hope that QE or some equally ill-advised monetary policy will somehow turn economic conditions around---but it has not worked so far and likely never will. 

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.

       Investing for Survival
            Forget about how bad everyone else is at forecasting; work on yourself.
    News on Stocks in Our Portfolios
Franklin Resources (NYSE:BEN) declares $0.18/share quarterly dividend, in line with previous

CF Industries (NYSE:CF) -4.4% AH after reporting lower than expected Q4 earnings, hurt by fertilizer prices that have plunged amid soft grain prices and global overproduction.

CF says its Q4 average selling price for ammonia fell ~18% Y/Y to $458/ton, while the price of urea ammonium nitrate fell 12.5% to $230/ton; meanwhile, CF's total operating costs and expenses jumped 50% to $88.3M.
CF says it expects 2016 corn planting to cover ~90.5M acres, a 2.5M acre increase from 2015.
T. Rowe Price (NASDAQ:TROW) declares $0.54/share quarterly dividend, 3.8% increase from prior dividend of $0.52


   This Week’s Data

            Month to date retail chain store sales rose slightly versus the prior week.

            January industrial production was up 0.9% versus expectations of up 0.4%; however, the December number was revised down from -0.4% to -0.7%.  Capacity utilization came in 77.1 versus estimates of 76.7.

            Weekly jobless claims fell 7.000.

            The February Philadelphia Fed manufacturing index came in at -2.8 versus forecasts of -2.5.


            Update on big four economic indicators (medium):



A letter from former democratic chief economic advisors to Bernie Sanders (short):

  International War Against Radical Islam

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