Friday, September 23, 2016

The Morning Call--The Fed's magic kingdom

The Morning Call

9/23/16

The Market
         
    Technical

The indices (DJIA 18392, S&P 2177) followed through strongly on Wednesday’s Fed rally.  Volume was back in the anemic range; breadth continued to improve.  The VIX was down another 10%, closing below its 100 day moving average and in a short term downtrend.  In addition, it finished right on the lower boundary of a very short term uptrend.  This pin action is clearly a big plus for stocks.

            The shrinking US stock market (short):

The Dow ended [a] above a rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {18016-19750}, [c] in an intermediate term uptrend {11402-24229} 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 {2120-2356}, [d] in an intermediate uptrend {1943-2545} and [e] in a long term uptrend {862-2400}. 
The long Treasury was up on volume again, closing well within short term, intermediate term and long term uptrends.  It [a] closed above its 100 day moving average, now resistance; if it remains there through the close on Monday, this MA will become support and [b] remained above a key Fibonacci level.  Both point to lower interest rates.

GLD was up on volume again, ending in a short term trading range but back above the lower boundary of its former short term uptrend for the second day.  If it remains there for much longer, I will likely negate the recent break of that short term uptrend.    It also finished above its 100 day moving average (support) and a key Fibonacci level.  This pin action is a plus for our GDX position.

Bottom line: all Markets continue to point to an extension of the QE holiday. However, they all have near in obstacles to overcome.  The indices are closing in on their former all-time highs (18668/2194) which should act as resistance and slow, at least temporarily, the current phase of upward momentum. 

TLT is nearing the upper boundary of its short term uptrend---also a resistance level.  Plus it gapped open yesterday; and historically gaps get filled. 

GLD (127) is pushing up against the upper boundary of a very short term downtrend; but if that is overcome, its next resistance point is the upper boundary of its intermediate term downtrend (136).  

    Fundamental

       Headlines

            The four week run in really poor US economic data is getting depressing: yesterday, August existing home sales (primary indicator) and August leading economic indicators (primary indicator) were both disappointing.  That pretty much cements this week as another negative.  More important, almost all the primary indicators over this four week period have been downbeat.  That certainly supports not only our own forecast but the cuts that were made in the Fed’s outlook on Wednesday.  The mystery here is why the Fed’s official forecast is that everything is great; and perhaps even more baffling is why investors are buying that routine.          

            David Stockman on the latest Fed (non) move (medium):

            JP Morgan on the latest Fed (non) move (medium):

            ***overnight, Markit released its September EU Flash PMI’s. The individual countries varied somewhat but the EU Composite and Services PMI were below estimates, while the Manufacturing PMI was above.

Bottom line: investors continued to tip toe through the tulips yesterday---demonstrating little concern about the growing disconnect between the Fed’s magic kingdom and the real world.  As long as they elect the path of willful ignorance, stocks are going up.  A test of the recent highs is imminent and barring some negative event, so too is a challenge of the upper boundaries of the Averages long term uptrends.   

I would use this strength to lighten up on your winners and get rid of your losers.

            Friday morning humor (short):

            My thought for the day: The world of investing is infinitely complex.  As a result, many investors wrongly conclude that they, therefore, need complex strategies in order to generate returns.  However, complicated strategies provide more opportunities for failure simply because there are more factors on which to be wrong.  For most investors, a simple strategy is easier to understand and easier to execute, making mistakes less likely particularly in times of high emotion (greed and panic).
         
       Investing for Survival
   
            Keeping your wits when stocks come unglued.


    News on Stocks in Our Portfolios
 
Economics

   This Week’s Data

            August existing home sales fell 0.9% versus forecast of being flat.

            August leading economic indicators dropped 0.2% versus expectations of a -0.1% increase.

            August CPI rose 0.2% versus estimates of up 0.1%; ex food and energy, it was up 0.3% versus projections of up 0.2%.
           
   Other

Politics

  Domestic

70% of arrested Charlotte rioters are from out of state (medium):

  International War Against Radical Islam


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