Tuesday, March 29, 2016

The Morning Call--Will Yellen add to the confusion?

The Morning Call


The Market

The indices (DJIA 17535, S&P 2037) lifted slightly yesterday, but, again on very low volume and mixed breadth.  The VIX jumped 3.4%, voiding a very short term downtrend; however, it remains well below its 100 day moving average and within a short term trading range.

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 moved up again, remaining above a Fibonacci support level.  It continues to support the notion that its recent decline is over and is now consolidating.

GLD was up.  While it remains within a short term uptrend and above its 100 day moving average, it is still above visible support.  So some further weakness is possible.

Bottom line:  ‘the indices continue their solid performance given how over extended they were and the amount of negative news they have had to overcome this (last) week.  True low volume and mixed breadth are not helpful.  Plus both voided very short term uptrends.  That said, they have plenty of near end support.  So my assumption remains that they challenge their all-time highs until/unless they negate the aforementioned support levels.’



            Yesterday’s economic news was generally mixed though somewhat upbeat: the March Dallas Fed manufacturing index was down but better than anticipated, February personal income was better than expected but spending and the PCE deflator were in line, the January trade deficit was lower than forecast; however, both exports and imports were down and February pending home sales were better than projected.  Overall, this was an improvement from last week.  However, it was Monday of a week that includes lots of data and a speech by Yellen.

            Personal spending and income review (short):

            My favorite optimist’s take on the last weekend’s corporate profits release.  As you read, remember the phrase ‘it’s different this time’ (medium):

            A bit more pessimistic view from John Hussman (medium):

            Overseas, the Chinese government released a strong February corporate profit report; on the other hand, an independent organization which compiles the Chinese equivalent of the Fed Beige Book stated that capex spending was at the lowest level in its five years of recording data and employment was at a four year low.

            ***overnight, February Japanese retail sales fell 2.3%.

            In addition, Libya, Iraq and Iran have indicated that they won’t attend the April OPEC meeting; and, of course, the US won’t be there.  What possible meaning could any proposed freeze have?

Bottom line: after a dovish statement following the FOMC meeting week before last, then three Fed chiefs sounding the hawkish trumpet last week, the $64,000 question is what will Yellen do this week?  Will she keep the Fed’s Bugs Bunny routine going and hop back to a dovish tone or will she really tighten investors’ sphincters and go along with the possibility of an April tightening?   My opinion is that it doesn’t matter because whatever she says, it will only further enhance the notion that the Fed is clueless.

In the meantime, the economic data both here and abroad is telling us that there is little to no growth out there and that corporate profitability is declining.  And all the while, the Averages are within a short hair of all time high valuations. 

There is something wrong with this picture.  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.

            Oil rally led by short covering (medium):

       Investing for Survival
            The single entity risk problem.

    News on Stocks in Our Portfolios

   This Week’s Data

            February pending home sales rose 3.4% versus expectations of up 1.5%.

            The March Dallas Fed manufacturing index came in at -13.6 better than the anticipated reading of -31.8.


            The Atlanta Fed lowered its first quarter GDP growth estimate to +0.6% from +1.4%.

            Year to date bankruptcy filings hit post 2009 high (short):



More on student loans (short):

  International War Against Radical Islam

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