The Morning Call
2/24/16
The
Market
Technical
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):
Fundamental
Headlines
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
Economics
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%.
Other
Yellen
is wrong: expansions do die of old age (medium):
Politics
Domestic
Mankiw on Marco
(short):
Update on
Obamacare from my favorite liberal website (medium):
International War Against Radical
Islam
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