Monday, June 20, 2016

Monday Morning Chartology

The Morning Call


The Market

            After the initial downdraft week before last, the S&P regained its footing last week.  Notice it seemed to find support several times at a key Fibonacci level.  I think that the bulls still have momentum on their side though clearly it has faded some.  Unless the short term trading ranges are broken on the downside, my assumption is that the S&P will continue to challenge the upper boundaries of its trend ranges.

            The long Treasury is hitting on all cylinders, i.e. in uptrends across all timeframes.  The good news is that it is still a long way from the upper boundary of its long term uptrend.  The bad news is that to get even close suggests negative US rates; and for that to occur, we would have to have serious economic problems.

            While GLD still can’t break to the upside, it is giving it the old college try.  But to sustain its current uptrend it has to overcome the very dense resistance zone that incorporates the upper boundaries of its short term and intermediate term trading ranges---no small feat as we have already seen.  A break above that would indicate clear sailing to the 140 level (the upper boundary of its long term downtrend).

            After a big jump up, the VIX has been trading in a row range, seemingly digesting those large gains.  The negative side (for stocks) is that it has reset its 100 day moving average to support after having bounced off the lower boundary of its short term trading range five times.  The positive side (for stocks) is that the VIX can’t get out of the 20 range.


            Last week’s data were in the positive camp again: above estimates: the June housing market index, May housing starts, the May small business optimism index, April business sales, the June NY and Philadelphia Fed manufacturing indices, month to date retail chain store sales, May retail sales, May PPI and PPI, ex food an energy; below estimates: May export and import prices, May CPI and CPI, ex food and energy, May industrial production and capacity utilization, April business inventories, weekly mortgage and purchase applications, weekly jobless claims; in line with estimates: May retail sales, ex autos, first quarter US trade deficit.

The primary indicators were also upbeat May retail sales (+), May housing starts (+) and May industrial production (-).  With the number of neutral to positive data weeks growing however erratically, I have to consider that the economy is stabilizing even if at lower growth rate versus slipping into recession.  I am not changing our forecast just yet primarily because the second quarter of the last couple of years has been more upbeat to only slip again in subsequent quarters.  However, the yellow light is starting to blink.  The score is now: in the last 40 weeks, ten have been positive to upbeat, twenty eight negative and two neutral. 

Overseas, there were few stats; but they also were positive. May Chinese industrial production was in line while fixed investment and retail sales were below expectations; UK unemployment fell to an eleven year low and retail sales were well above forecast; Fitch lowered the Japanese government credit outlook (not the rating but the outlook for the rating) from stable to negative.

***overnight, Japanese exports fell for the fifth month in a row; and the IMF urged Japan to overhaul its stimulus (read monetary) policies.

It was also a busy week for the central banks who basically did nothing.  The Fed, the Bank of Japan and the Swiss National Bank all left key interest rates unchanged.  The most important of these was our own Fed which did another policy 180, putting itself back into the firmly dovish camp---to the confusion of all. 

Then on Friday, the St Louis Fed chief said that the Fed needed to back off its ‘everything is awesome’ routine and acknowledge that QEInfinity hasn’t done all that had been peddled by the Fed.  In short, the Fed’s economic forecast has been wrong and once again it waited too long to transition to normalized monetary policy.  By implication, that means that when, as and if the economy slips into recession, the Fed has nada to combat it with.  This seems something of a follow up to the lowered rate hike forecasts coming out of Wednesday’s FOMC meeting.  Whether this gets echoed by other Fed members, especially Yellen (she testifies before congress twice this week), remains to be seen.  But it is a sign that at least someone in the Fed has heard and has (1) recognized that the Fed’s forecast is a pipedream, (2) its policies are a lot less effective that it [and investors] has assumed, (3) hence, its policies in the future will be less effective [the Fed put is dead?] and (4) is giving official voice to the rising criticism from outside quarters.

            Jeff Gundlach on the Fed (medium):

            Nothing has changed: recession, a sterile Fed and excessive equity valuations.

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This is unbelievable---the Orlando shooter’s father is well connected in Washington and has been seeking support from the US for the Afghan presidency.

51% of US muslims want sharia (medium):

  International War Against Radical Islam

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