Wednesday, February 24, 2016

The Morning Call--quothe Russell Dowripple 'Not yet'

The Morning Call

The Market

The indices (DJIA 16431, S&P 1921) retreated from an extremely overbought position yesterday, as breadth weakened and volume declined.  The VIX was up 7.5%, bouncing off the lower boundary of a very short term uptrend as well as its 100 day moving average---not that positive for stocks.
   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 {16732-17491}, [c] above the lower boundary of its intermediate term trading range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and after ending above the last lower high Monday, reversed that move.   Whether Monday’s performance was a head fake or the real McCoy will be decided by the follow through; though bear in mind the S&P has maintained its trend 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] above the lower boundary of its short term downtrend {1881-1966}, [d] within its intermediate term trading range {1867-2134}, [e] in a long term uptrend {800-2161}, [f] still within a series of lower highs and [g] back below the 1928 Fibonacci retracement level after a one day penetration. 

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] above the lower boundary of a very short term uptrend. 

GLD was up 1.5%, remaining within very short term and short term uptrends as well as above an upward trending 100 day moving average. 
Bottom line:  the Averages undid all the pluses achieved in Monday’s pin action.  Of course, stocks were very overbought (and still are); so yesterday could simply be a pause with more to come on the upside.  On the other hand, the action in the VIX and especially TLT and GLD suggest that Monday was more likely a head fake than the start of something new.  In total, the technical picture looks confusing enough to me that it is better not to guess on the short term price direction and wait for more defining follow through.
            Goldman on the rally (medium):



            Lots of US datapoints released yesterday: month to date retail chain store sales and January existing home sales were better than expected, the December Case Shiller home price index was in line and February consumer confidence and the Richmond Fed manufacturing index were less than anticipated.  So the numbers were evenly matched though existing home sales was definitely the most important stat in the group.

            In another piece of anecdotal evidence, JP Morgan made a $500 million addition to its loan loss reserves.

Overseas, only one number reported---February German business sentiment which declined.  In addition, all three credit rating agencies lowered Brazil’s credit rating to junk.

            And in other news, the Saudi Arabian oil minister ruled out oil production cuts anytime soon and Iran said that the idea of a freeze in oil production was a ‘joke’.  Though no one who produces or owns oil or oil stocks was laughing.  This keeps pressure on the oil producing economies as well as our own equity market which has been highly correlated to oil of late.

Bottom line:  my tune hasn’t changed---the global economy gives every sign of slipping into recession; the central bankers have some kind of death wish, substituting mind numbing Keynesian hubris for reading the newspapers and realizing their policies haven’t worked; and the stock market lemmings keep valuations at unreasonable heights, seemingly having no qualms about following St. Yellen off the cliff.  What could possibility go wrong?

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.

            The latest from Doug Kass (medium):

            What could go right (medium):

            Update on valuations (short):

       Investing for Survival
            Ten steps to follow when stocks are plunging

    News on Stocks in Our Portfolios

   This Week’s Data

            Month to date retail chain store sales were higher than the prior week’s reading.

            The December Case Shiller home price index was up 0.8%, in line.

            February consumer confidence came in at 92.2 versus expectations of 97.2.

            January existing home sales rose 0.4% versus estimates of a decline of 2.5%.

            The February Richmond Fed manufacturing index was reported at minus 4 versus forecasts of plus 2.

                Weekly mortgage applications fell 4.3%, but the more important purchase applications rose 2.0%.


            Yellen is wrong: expansions do die of old age (medium):



Mankiw on Marco (short):

Update on Obamacare from my favorite liberal website (medium):

  International War Against Radical Islam

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