Tuesday, August 23, 2016

The Morning Call--The Fed holds the headlines

The Morning Call


The Market

The indices (DJIA 18529, S&P 2182) drifted lower yesterday but that masked a lot of intraday volatility.  Volume was down; breadth weakened.  The VIX rose 8%, finishing below its 100 day moving average, within a short term downtrend and still close to the lower boundary of its intermediate term trading range (support). 

            Market schizophrenia increases (short):

The Dow ended [a] above rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {17645-19381}, [c] in an intermediate term uptrend {11333-24160} and [d] in a long term uptrend {5541-19431}.

The S&P finished [a] above its rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {2072-2311}, [d] in an intermediate uptrend {1923-2525} and [e] in a long term uptrend {862-2400}. 

The long Treasury was up, closing above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends.  After breaking below the lower boundary of a pennant formation last week, it finished above the pennant formation’s upper boundary yesterday.  Given this erratic pattern, I think that pattern has offered little directional value this time.

Falling demand for US Treasuries---I discussed this in last week’s Closing Bell (short):

GLD fell, but finished above its 100 day moving average and within short term and intermediate term uptrends.  However, GLD has gone nowhere since late June.  Plus I remain concerned about its failure at its second try to surmount a key Fibonacci level, then its negating a very short term uptrend. 

Bottom line: for the last couple of weeks, I have been pointing out that while the charts of the Averages, TLT and GLD all point up, they all seem to be running out of steam.  Yesterday’s pin action demonstrated more of the same.  Taken individually, each is hardly worth the mention; but in aggregate, they warrant attention.  So I continue to worry that something is amiss.  I recognize that this concern is influenced by my negative take on current valuations; so I am not beating the drums. Still be careful.

            Stock buybacks hit four year low (short):



            Only one US datapoint yesterday: the July Chicago National Activity Index was up strong but the June reading was revised down by more than the July number rose.  So the two month affect was a wash.  Nothing overseas.

            ***overnight, the August EU flash composite and services PMI’s came in better than expected, while the manufacturing PMI was worse; the August German flash composite PMI was also less than expected; the August Japanese manufacturing PMI was slightly better than estimates though it remains in negative territory.

            The Fed managed to hold on to the headlines.  Over the weekend, Fed vice chair Fischer gave some hawkish comments, adding even more confusion to that which three other FOMC members and the most recent FOMC minutes created last week.  Of course, we have the Fed chair herself speaking on Friday.  If history repeats itself, she will offer up more dovish pabulum which will provide solace to QE enthusiasts.

            Too late for the Fed to raise rates? (medium):

                Fed study shows that an additional $4 trillion in QE will be needed if the US goes into a recession (medium):

                We also received news that the ECB now buying private debt placements, a step just short of helicopter money (short):

Bottom line: we are now in another cycle in which the Fed strives to achieve maximum confusion in order to obfuscate the problems it has created and the fact that it has no solution for correcting them.  We will get the coup de grace on Friday when Yellen babbles for an hour, hedges everything that she says and ends up saying nothing.  One day investors are going to get sick and tired of this s**t.  But until they do sit back and enjoy the part of your portfolio that is invested; however, consider taking some money off the table, either selling a portion of the positions in your winners or all of your losers or both.

                Bumping against max cash position (medium):

            The latest from Jim Grant (medium):

            The latest from Jeff Gundlach (medium):

            Bulls, bears and the broken clock syndrome (medium):

            Fundamentals matter in valuation (medium):

            My thought for the day: Leverage works in both directions.  Even if you don’t agree with me and intend on staying fully invested, consider at least eliminating any margin debt.

       Investing for Survival
            How to survive a melt up.
    News on Stocks in Our Portfolios

   This Week’s Data


            Top 25 pension funds are $225 billion underfunded (medium):

            Goldman: oil price rally should stall (medium):





            Tensions escalate between China and Japan (medium):

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