Thursday, February 11, 2016

The Morning Call---Nothing!

The Morning Call


The Market

The indices (DJIA 15914, S&P 1851) closed down slightly yesterday on declining volume; volatility remained at an elevated level 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 {16787-17523}, [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 {1900-1987}, [d] below the lower boundary of its intermediate term trading range {1867-2134} for the third day; if it remains there through the close today, 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 was up strong, ending above the upper boundary of its short term trading range for the third day, thereby resetting to an uptrend. 

Oil traded near its recent price lows.

 On another huge volume day, GLD was up, closing [a] above the upper boundary of its short term trading range; if it remains there through the close on Friday, it will reset to an uptrend 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).  In fact, it attempted to trade back above 1867 seven times intraday yesterday but failed every time---a sign of the increasing weakness of this boundary as support.  If this break is confirmed today, then my attention goes to the Dow and its ability to hold above 15842.  As I noted yesterday, 1867/15852 are the technical lines in the sand due to the lack of any near in visible support.

The long Treasury reset to a short term uptrend; an indication that bond investors are worried about a recession and/or credit problems overseas. 

Gold continues to smoke, now challenging the upper boundary of its newly reset short term trading range on big volume.  At the open today, our Portfolios were establish a 2% position in the Gold Miner ETF (GDX---$17.14).  Remember, gold has always been a trading (risk hedging) position; hence, it is subject to a very tight Stop Loss ($15.69)



            There were two minor US economic datapoints released yesterday: weekly mortgage and purchase applications were up, the more important latter just barely.  Plus the December federal budget was in surplus due primarily to a timing function of recognizing cash flows.  There were no international economic stats.

            ***overnight, the Bank of Sweden lowered key rates from -.35% to -.50%.

            Of course, the big news event of the day was the first of two Yellen appearances before congress this week---the second being today.  I have included the text of her official address below if you care to wade through it.  My take was, to quote George Costanzo, ‘I believe that I can sum it up in one word….nothing!’.  Yellen walked a fine line between maintaining that the economy was doing just fine so rate hikes are still on the table, but not fine enough to likely warrant a March rate hike.  In short, it was a dose of Casper Milquetoast pabulum.

            The text of Yellen’s comments if you want to read it (medium):

            Hilsenrath on Yellen (short):

            Both monetary and fiscal policy have failed the economy (short):

            Another theme running through yesterday’s internet and media narrative was the rising risk of yet another financial crisis.  I mentioned this factor in yesterday’s Morning Call as one which is only now starting to get the proper attention.  Here are the best links I could find on the subject:

            Widening credit spreads (short):

            And the problems they pose (medium):

            Plus a flattening Treasury yield curve (short):

            These concerns (especially as regards the EU banks) provoked a reaction from the ECB that they were considering buying the common stocks of the banks along with other easing moves.  You know that has to end well.

Bottom line: the economy continues to display weakness.  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.  To top it all off, the Fed’s monetary policy is doing its best imitation of a windsock---which leaves a vacuum that the Markets can fill if they decide to.  It is not a plus for stock prices.

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’.

             Oil has never been the problem (medium):

            Are there bear markets without recessions?  Yes, but ‘without recessions’ is a big assumption at present (short):

            What follows drawdowns of 10% or more (short):

            Buy high/sell low (medium):

       Investing for Survival
            Short term decision on long term capital.

   This Week’s Data

            The January US budget was in surplus $55 billion; however, that was largely a function of the calendar.  Nevertheless, the year to date budget deficit is down roughly 3% on a year over year basis. 

            Weekly jobless claims fell 16,000 versus expectations of a 4,000 decline.

            More on the mounting global debt problem (medium):



The Supreme Court and the EPA (short):

  International War Against Radical Islam

            The latest (confusing) update from Syria (medium):

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