Wednesday, March 23, 2016

The Morning Call--Bulls rule

The Morning Call


The Market

The indices (DJIA 17582, S&P 2049) dropped slightly, on low volume, mixed breadth and a fractionally higher VIX.  The latter remains near  the lower boundaries of its short and intermediate term trading ranges.  A close in the 10 to 12 price range would represent a good level for the purchase of portfolio insurance.

The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term a trading range {15431-17758}, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5471-19343}.

The S&P finished [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term trading range {1867-2104}, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {800-2161}. 

The long Treasury continued to drift lower, remaining within a very short term downtrend and below a Fibonacci support level.  Nonetheless, it well within a short term uptrend and above its 100 day moving average.

Bank of America on the high yield debt market (medium):

GLD rose but still voided its very short term uptrend for a second time.  However, it remains within a short term uptrend, above its 100 day moving average and a Fibonacci support level.

Bottom line:  bulls love it when an overbought market handles bad news (Brussels attack) with aplomb.  Bull or not, you have to respect that behavior.  Momentum is clearly to the upside; so my assumption remains that the Averages will challenge their all-time highs.  I still don’t believe that those boundaries will be surmounted.



            Yesterday’s US economic data turned mixed to positive: month to date retail chain store sales improved week over week, the March Richmond Fed manufacturing index was much stronger than forecast while the March flash manufacturing  PMI was disappointing. 

And just to be sure that everyone was awake, two Fed officials totally contradicted the statement from last week’s FOMC meeting and said that economic conditions argue for higher rates perhaps as soon as April.  You would think that this might have confused investors; but it didn’t because it is par for the course.  These guys are the ones that are confused and as long as they are, they are going to be dovish, dovish, dovish.

Central banks prove Einstein’s theory (medium):

            Will the ECB be forced to buy junk bonds? (medium):

Chaos in the Japanese bond market (short):

Overseas, the March EU Markit composite PMI came in better than anticipated; UK inflation was reported at zero; and German business confidence picked up in March---the Brussels attack ought to help that.  Still a plus number is an outlier in the EU; so we have to be happy with what we get. 

In other potentially Market impacting news, Iran said that it might join in an oil production freeze ‘at a later date’ (in other words, after it has ramped up to full production).  So nothing really ‘potentially Market impacting’.

            The price of oil is reaching its limit (medium):

Bottom line: there was enough bad (Brussels) and confusing (the Fed) news yesterday that if investors wanted to get pessimistic, they had the excuse.  Since the only positive in the investment picture (in my  opinion) is the central bank stampede to easy money, I am left waiting for either the banks themselves or investors to read and compute the news of the constant stream of poor global economic stats and declining corporate profitability.  I have no idea when that magic moment will occur.  Until it does, stocks will remain overvalued.

In my opinion, the current rally represents an excellent opportunity to raise cash reserves by selling either a portion of your profitable investments and/or sell your losers.

            More on corporate profits (short):

            Under the category of things to think about---current investor concerns (medium and a must read):
            The latest from Doug Kass (medium and a must read):

            The latest from John Hussman (medium):

       Investing for Survival
            Reasoning in unreasonable circumstances.

    News on Stocks in Our Portfolios
General Mills (NYSE:GIS): FQ3 EPS of $0.65 beats by $0.03.
Revenue of $4B (-8.0% Y/Y) misses by $80M.
Nike (NYSE:NKE): FQ3 EPS of $0.55 beats by $0.06.
Revenue of $8.03B (+7.6% Y/Y) misses by $170M.


   This Week’s Data

            Month to date retail chain store sales rose versus the prior week’s reading.

            The March flash manufacturing PMI came in at 51.2 versus estimates of 52.4.

            The March Richmond Fed manufacturing index was reported at 22 versus expectations of 0.

                Weekly mortgage applications fell 3.3% while purchase applications were down 1.0%.


            China is drowning in debt (medium):

            Canada just announced a proposal that would make depositors of a bankrupt bank creditors and then force them to accept stock (versus their deposit) in a bail-in.



Freedom Caucus rejects republican budget (short):

Pat Buchanan on beltway republicans (medium):

Quote of the day (short):

  International War Against Radical Islam

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