Wednesday, May 18, 2016

The Morning Call---OK, everything isn't awesome

The Morning Call


The Market

Well darn, the indices (DJIA 17529, S&P 2047) just couldn’t muster any follow through from Monday’s strong performance.  Both ended close to the lower boundary of their short term trading range which also happens to be the neck line of a head and shoulders formation.  Volume rose and breadth deteriorated.   The VIX jumped 6%, ending within short and intermediate term trading ranges but is very close to breaking above its 100 day moving average.  If that occurs, it would not bode well for stocks.

The Dow closed [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 {17498-18736}, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5541-19413}.

The S&P finished [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term trading range {2039-2110}, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {830-2218}. 

The long Treasury rose but continues to struggle, ending below the upper boundary of a very short term downtrend, but within a short term uptrend, over its 100 day moving average and a key Fibonacci support level.

GLD was up, closing within very short term and short term uptrends as well as above its 100 day moving average.  It is also about to challenge a key Fibonacci level.  If that is successful, it seems like a sure bet that it will challenge the upper boundary of its intermediate term trading range.

Soros adds to his gold holdings (short):

Bottom line: both of the Averages are nearing a challenge of the lower boundaries of their short term downtrends. If those levels can’t hold, my attention will shift from resistance levels to support levels.



            We got more upbeat economic news yesterday: April housing starts were much better than expected, though building permits were worse, April industrial production was stronger than anticipated.  Housing starts and industrial production are also primary indicators, making yesterday a very strong data day indeed.  Nonetheless, it did have its negatives: April CPI was up more than estimates, month to date retail chain store sales showed a marked decline in growth from the prior week.  In addition to the aforementioned April building permits.  So if you are hoping that the US avoids a recession, yesterday was a breath of fresh air.

            That said, skeptics remain (medium):

            And, picturing the economy (medium):

            Unfortunately, the international stats continue to disappoint.  April UK inflation was below forecasts as was first quarter French GDP; though the French debt to GDP was higher than expected.

            ***overnight, first quarter Japanese GDP came in better than expected; April Chinese housing pricing soared 12.4% year over year (can you say ‘bubble’?)

            Of course, if you are among the euphoric crowd of easy money devotees, yesterday was a bummer: strong economic data and a higher CPI than consensus are not the stuff of more QE.  And just to make life really miserable, two Fed officials said that a June rate hike was still on the table.  I don’t for a second believe these guys (and gal) will do it---at least not as long as their primary goal is to keep the Markets buoyed.  But those comments make for good rhetoric and keep alive the notion that the Fed is seriously debating the transition to normalized monetary policy---when in fact they are wee weeing in their pants that the Markets might really believe that they intend to normalize Fed policy.

            Bottom line: OK, so maybe everything isn’t awesome; in particular if you are one of those lemmings that believe that as long as the global economy is weak then the global central banks will keep the QE musical chairs game going.  I have said this before but I will repeat it:  this situation is not going to end pleasantly.  Either the central banks become convinced that the global economy is improving and they start ramping up rates which hammers the algos and carry traders (and likely leads to a recession since it is highly probable that the global economy isn’t improving).  Or the global economy isn’t improving and those same central bankers sit and watch as conditions worsen because everything they have tried and keep trying hasn’t worked; indeed, they have only made things worse (and sooner or later those aforementioned lemmings figure this all out).  So its dealer choice.  Either a global recession brings a Market decline or a Market decline brings global recession.

I continue to believe that cash may be the most valuable asset in your portfolio.  Adding to it by selling a portion of your winners makes a lot of sense.

            The latest from John Hussman (medium):
    News on Stocks in Our Portfolios
Hormel Foods (NYSE:HRL): FQ2 EPS of $0.40 beats by $0.01.
Revenue of $2.3B (+0.9% Y/Y) in-line

   This Week’s Data

            Month to date retail chain store sales growth was below the level of the prior week.

            April industrial production rose 0.7% versus estimates of up 0.2%.

            Weekly mortgage applications declined 1.6% while purchase applications fell 6.0%.




  International War Against Radical Islam

            Senate passes bill that would lead to investigation of Saudi’s role in 9/11 (medium):

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