Tuesday, February 9, 2016

The Morning Call--Will 1867 hold?

The Morning Call

2/9/16

The Market
         
    Technical

The indices (DJIA 16027, S&P 1853) were whacked big time again yesterday, on high volume, lousy breadth and no letup in the volatility.

   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 {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 {1904-1992}, [d] below the lower boundary of its intermediate term trading range {1867-2134; 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 smoked, ending above the upper boundary of its short term trading range; if it remains there through the close on Wednesday, it will reset to an uptrend.

 On another huge volume day, GLD was up strong, closing [a] within a newly reset trading range; in fact, it is very near to challenging its upper boundary and [b] above the upper boundary of its intermediate term downtrend for the fourth day, thereby resetting to a trading range.  We clearly are witnessing a significant bottom in GLD.

Bottom line:  yesterday’s pin action could have been pointing to major changes in many markets.  The lower boundary of the S&P’s intermediate term trading range is being challenged; and as I have pointed out previously, if that challenge is successful, there is hardly any visible support between 1867 and 1500/1600.  Of course, the break hasn’t been confirmed.  Plus the Dow has not yet challenged its comparable level (15842).  So it is too soon to go full bear mode.

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.

            Another down Monday/down Friday (short):


    Fundamental

       Headlines

            There were no economic data released either here or abroad yesterday.  However, there were two notable headlines:

(1)   Chinese currency reserves dropped to a lower level than expected.  There was no reaction there because the country is shut down for a week in celebration of the Chinese New Year.  The importance of this development is that lower reserves means less ammo for a country to defend its currency’s value,

(2)   Saudi Arabia and Venezuela met over the weekend with many hoping some sort of agreement could be reached on restrained oil production.  No such luck.

***overnight, December German industrial production fell for the second month in a row, the November reading was revised down from +1.2% to +0.1%; EU sovereign risk spreads widen.


Bottom line:  most investor attention yesterday was still focused on the employment numbers released last Friday.  I went through my take on those stats in yesterday’s Morning Call, the bottom line of which, in my opinion, is that they point to recession.  Concerns for which would explain much of the dramatic pin action discussed above.

Deteriorating liquidity is a Market problem (note that the author equates ceasing to expand QE with ‘tightening’; so you can imagine the problem if the Fed starts reducing its bloated balance sheet)

            Global growth slowing (medium):

            A primer on negative interest rates (medium):

            Jeremy Siegel’s mea culpa (short):


      

       Investing for Survival
   
            The importance of process (like price discipline, valuation model)

           
     
Economics

   This Week’s Data

            The January small business optimism index was reported at 93.9 versus expectations of 94.9.

   Other

Politics

  Domestic

  International War Against Radical Islam







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