Wednesday, February 10, 2016

The Morning Call--More Yellen happy talk?

The Morning Call


The Market

The indices (DJIA 16014, S&P 1852) closed down slightly yesterday but the volatility continued and breadth was poor.

   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 {16802-17555}, [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 day moving average, now resistance, [b] below its 200 day moving average, now resistance [c] below the lower boundary of its short term downtrend {1902-1989}, [d] below the lower boundary of its intermediate term trading range {1867-2134} for the second day; if it remains there through the close on Thursday, it will reset to a downtrend}, [e] in a long term uptrend {800-2161}  and [f] still within a series of lower highs. 

The long Treasury inched higher, ending above the upper boundary of its short term trading range; if it remains there through the close today, it will reset to an uptrend.

 On another huge volume day, GLD was down slightly, closing [a] within a short term trading range and very near its upper boundary and [b] within an intermediate term trading range.  

Bottom line:  the S&P continues its challenge of the lower boundary of its intermediate term trading range (though the Dow remains above its comparable level), while the long Treasury and gold held their recent gains. At the moment, the most important thing to watch is S&P 1867 and the comparable level in the Dow.  These are the technical lines in the sand due to the lack of any near in visible support.

The long Treasury is challenging the upper boundary of its short term trading range; and the upper boundary of its intermediate term trading range is not that far away.  GLD has blown out its short and intermediate term downtrends decisively on monstrous volume and is now about to challenge the upper boundary of its newly reset short term trading range. Our Portfolios will likely establish a position in gold on any pullback.

            The current decline in perspective (short):



            Yesterday’s US economic stats included: the January small business optimism index which declined, month to date retail chain store sales growth which was lower than in the prior week and December wholesale inventories (in line) and sales (down more than inventories).  No letup here.  Indeed, it appears that investors and the chattering class are now starting to figure out that all is not well Mudville.  Once the realization of declining economic activity/corporate profits actually takes root (which apparently it is now only beginning to do), stock prices are not likely to do well.

Overseas, December German industrial production fell; and EU sovereign risk spreads widen.  I have spent a lot of time discussing the risks associated with overleveraged bank balance sheets.  And more recently focused on the European banks.  Here is a good summary of the problem (medium and a must read):

Bottom line: the economy continues to display weakness and it seems to now be entering the consciousness of all the dreamweavers.  The global economy isn’t providing any support; and indeed, it has weakened to the point that credit default spreads are widening in both the sovereign and bank securities.  This is just another manifestation of the risk off trade that is spreading through multiple markets.  It is not a plus for stock prices.

Today, we will be treated to another self-justifying, intellectually shallow presentation from the Fed chairperson herself as she begins two days of congressional testimony.  Given the whackage taking place in the stock market and the flood of lousy data, I can’t imagine Yellen not sounding dovish with regard to a potential March rate hike.  On the other hand, who knows how much pressure may be exerted on her from the white house given the Alice in Wonderland employment narrative peddled by Obama last Friday. In either case, we will likely also be treated to another high volatility day.

Just to be clear, I hope that the Fed sticks to its monetary normalization agenda, tardy though it may be.  I believe that until monetary policy returns to normal both the economy and Market will underperform.

I am not suggesting that investors run for the hills.  I am suggesting that in any rally that from current levels (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’.

            The latest from Doug Kass (medium):

            The truth about the stock market (a bit long but worth the read):

            Want to know why the stock market is declining? It’s simple (medium):

            Wall Street strategist cutting the estimates for year-end S&P value (medium):

            When easy money doesn’t help: the latest from John Hussman (medium):

       Investing for Survival

            Plan your retirement as though you will live to 90.


   This Week’s Data

            Growth in month to date retail chain store sales fell (again) relative to the prior week.

            December wholesale inventories declined 0.1%, in line; however, wholesale sales fell 0.3%.

                Weekly mortgage applications rose 9.3% while purchase applications were up 0.2%.


            The track record of Japanese QE and negative interest rates (medium and a must read):

            My favorite optimist unwittingly (apparently) symbolizes to Einstein’s definition of insanity (medium):




Wednesday morning humor: must watch presentation of political correctness (10 minute video):

  International War Against Radical Islam

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