Friday, February 26, 2016

The Morning Call--No confusion yesterday

The Morning Call


The Market

The indices (DJIA 16697, S&P 1951) had another very upbeat day on poor volume and mixed breadth.  However, the VIX declined 8%, taking it below the lower boundary of a very short term uptrend and right on its 100 day moving average.  If it stays below the uptrend through the close today, it will be negated. 
   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 {16725-17471}, [c] above the lower boundary of its intermediate term trading range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and has now made a second higher high.

The S&P finished [a] below its 100 day moving average, now resistance, [b] below its 200 day moving average, now resistance [c] above the lower boundary of its short term downtrend {1878-1964}, [d] within its intermediate term trading range {1867-2134}, [e] in a long term uptrend {800-2161}, and [f] has made a higher high.

The long Treasury rose, ending [a] within its short and intermediate term trading ranges, [b] well above its upward trending 100 day moving average and [c] right on the lower boundary of a very short term uptrend, negating Wednesday’s break. 

GLD was up slightly, remaining within very short term and short term uptrends as well as above an upward trending 100 day moving average. 


Bottom line:  there was no confusion in yesterday’s pin action.  Certainly, on a price basis, the bulls scored a big initial win.  The Averages closed above the upper boundaries of those very short term trading ranges (15448-16518, 1812-1948) that I cited yesterday.  In addition, both have set a higher high.  I can list a lot of the ‘buts’; however, that is less important.  The key now is holding yesterday’s gains; and if they do, then we need to start looking to the next resistance levels---which are now the upper boundaries of Averages short term downtrends.
            The latest from Doug Kass (short):

            The latest from Stock Trader’s Almanac (short):



            Yesterday’s US economic stats were negative by volume: January durable goods were much stronger than expected, weekly jobless claims were up more than estimates and the February Kansas City Fed manufacturing index fell from its January number.  However, the durable goods data was by far the most important; so I will count the day as mixed.

            Overseas, January EU inflation came in lower than projected.

            Other news:

(1)   the IMF called for ‘bold’ fiscal action from the G20 [meeting this weekend] to support demand.  Good luck with that from the US [where nothing is likely till mid-2017], Germany [barring a turnaround in German attitude] or Japan [which has already implemented fiscal stimulus---by the way, to no avail].

However, yesterday the Chinese government [likely in anticipation of the G20 meeting which happens to be in Singapore] said that it would take significant steps to stabilize the yuan [no more competitive devaluations] and enact fiscal stimulus.  Of course, we all know these guys lie; but, if they follow through, it would be a plus not just for the Chinese but also the global economy,

Unfortunately, here is an example of the Chinese stimulating lending (medium):

(2)   in a CNBC interview, St. Louis Fed head Bullard [a hawk] said the US economy was just fine BUT reiterated that any further interest rate hikes would be ‘unwise’.  In short, just more bulls**t Fed double speak, full of sound and fury, signifying nothing.  These guys are clueless except that they know what they have done hasn’t so far worked but have no idea what to do next.

(3)   finally, another rumor circulated that OPEC could meet in March.  ‘Could’ being the operative word.  These guys are jerking off the rest of the world.  I wouldn’t be shocked if they were using their headlines to trade their own sovereign wealth funds.

Returning the world of real events, Whiting Petroleum, the largest oil producer in North Dakota, suspended all fracking operations.  Clearly a sign that the Saudi strategy [drive high cost producers out of business] is working.  It remains to be seen whether this is a one off event or a sign of things to come.  If the latter and assuming that means that US fracking oil production will begin to shrink, then it could be a sign of potentially higher prices---depending on what Iran and Iraq do with their production and the level of demand in a slowing global economy.  My point here is not to make a prediction but to highlight a factor to watch because it could lead to a change in the energy industry.

Bottom line:  the economic stats, here or abroad, continue to point to recession, both here and abroad.  There are a couple of factors that investors seem to be focused on short term that have lifted their spirits:

(1)   the hope for a stabilization in oil prices springing from the second rumored OPEC meeting in as many weeks [the hope being lower production/higher prices], complemented by the potential fall in supply represented by the withdrawal of Whiting Petroleum from its fracking production in North Dakota.
At the moment, this is little more than a ‘gleam in investors’ eyes’.   But, in my opinion, we remain in a period of misguided elevated investor euphoria.  So the tendency is to price in a positive event [higher oil prices] like it has a 30% odds of occurring when in reality it is 5%.

Just ask Russia (short):

(2)   the Fed is cooing like a dove; the IMF is calling for more action to lift demand; the Chinese have responded positively right before this weekend’s G20 meeting; and if nothing QE happens there, then it can always occur at the upcoming ECB or Fed meetings.   God only knows what this motley collection of yahoos will do; but I can certainly understand why investors are getting jiggy ahead of this series of meetings. 

But as I said yesterday, ‘In my opinion, more of the same misguided Keynesian claptrap will only make economic conditions worse.  But given the past relationship between QEInfinity and investor jigginess, hope will likely continue to spring eternal.   If it does, it makes sense to use any rebound to take some profits in winners that have held up during recent decline.’

            At the risk of injecting reality into all this jubilation, here is an update on revenues and earnings (medium and not good):

       Investing for Survival
            Why bear markets are so painful.

   This Week’s Data

            The February Kansas City Fed manufacturing index was reported at -12 versus January’s reading of -9.

                Fourth quarter GDP came in up 1.0% versus forecasts of up 0.4%.

            The December US trade deficit was $62.2 billion versus projections of $62.5 billion.




The ten worse colleges for free speech (medium):

Who pays the taxes in the US (medium)?

  International War Against Radical Islam

            In the war against radical islam, this is the essence of US policy (short):

            The EU immigration problem appears to be coming to a head (medium):

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