Friday, October 21, 2016

The Morning Call--Draghi chickens out again

The Morning Call


The Market

Yesterday, the indices (DJIA 18162, S&P 2141) couldn’t make it three up days in a row.  Volume was flat; breadth weakened.  The VIX was down 4 1/2% (unusual for a down Market day), closing [a] below its 100 day moving average for the second day (support; if it remains there through the close today, it will revert to resistance), [b] below its 200 day moving average (now resistance), [c] in a short term downtrend and [d] in a very short term uptrend.  If the VIX is able to hold below its 100 day moving average, it will improve the short term outlook for stocks.

The Dow ended [a] below its 100 day moving average, now resistance, [b] above its 200 day moving average, now support, [c] in a short term trading range {17092-18693}, [c] in an intermediate term uptrend {11503-24348} and [d] in a long term uptrend {5541-19431}.

The S&P finished [a] back below its 100 day moving average {now resistance}, negating Wednesday’s upside break, [b] above its 200 day moving average, now support, [c] in a short term trading range {1995-2193}, [d] in an intermediate uptrend {1964-2566} and [e] in a long term uptrend {862-2400}. 

The long Treasury rose slightly, closing below its 100 day moving average (resistance), within a very short term downtrend, above a key Fibonacci level and within short term, intermediate term and long term uptrends.  Long term, TLT’s chart is still healthy; but short term not so much so.

GLD fell, ending below its 100 day moving average (resistance) and in a short term downtrend.  However, it finished right on its 200 day moving average and above a key Fibonacci level.  It is trying to stabilize after a rough couple of months.

Bottom line: I think that the S&P negating the break above its 100 day moving average is less significant than recognizing that this pin action is part of a bigger picture that includes the DJIA, bonds and gold; and that is that it reflects that all these Markets continue to trade as though they are at an inflection point.  I await its resolution.      

            Why technical analysis gets a bad rap (short):



            Yesterday’s US economic data weighed to the upside: weekly jobless claims were negative, September leading economic indicators were neutral and the October Philly Fed index and September existing home sales were better than consensus.  There are no releases today; so that means this week will get scored as a slight positive.

            Overseas, the ECB left key interest rates unchanged.  Plus Draghi declined to discuss the start of tapering scheduled to begin in 2017; that led investors to believe that this date will be pushed out.  Again we see that no matter how much jawing the central bankers do about normalizing monetary policy, they simply don’t have the courage to start the process.

            Most of the media, both print and television, spent the bulk of their time and space analyzing Wednesday night’s debate.  As a general rule, I try to stay out of the political narrative game; but I will make one observation.  I think that Trump’s comments about not being ready to accept the outcome of the election (despite his later ‘clarification’) not only clinched his defeat but also may have put at risk the down ballot elections.  What concerns me is a democratic party sweep of congress with all that implies about taxes, spending and regulations and their impact on our economy.

            That said, here is a little history (medium):

Bottom line:  this is one of those times that occur occasionally in which the technical picture dominates, i.e. the Market appears to be struggling at an inflection point.  To be sure, there are a number of fundamental factors which lack clarity that are behind the narrow back and forth trading.  But I have no idea which of these factors weigh the most heavily on investors’ minds or how to anticipate the news flow on each or what defines the degree of positive or negative surprise on each that would prompt action as a result.  The only way I am going to know is how the Market reacts to that news flow viz a viz support/resistance levels. As long as clarity is lacking, the Market is apt to churn directionlessly. 

If you haven’t already, take the opportunity to build your cash position by lightening up on your winners and selling your losers.

            Mohamed El Erian on the Market (short):

            My thought for the day:  historically, stocks are embraced as investments or dismissed as gambles in routine and circular fashion and usually at the wrong times.  Said another way, investors hate stocks when they are cheap because the prevailing emotion is fear and love them when they are expensive because the prevailing emotion is greed.  The reason that they are usually wrong is because when stocks are cheap, they reflect (discount) all the bad news and none of the good and when stocks are expensive, they reflect all of the good news and none of bad.  That in a nutshell is why I developed our Price Disciplines.

       Investing for Survival
            Avoiding stupidity.
    News on Stocks in Our Portfolios
            Coca-Cola (NYSE:KO) declares $0.35/share quarterly dividend, in line with previous.

            Schlumberger (NYSE:SLB): Q3 EPS of $0.25 beats by $0.03.
Revenue of $7.02B (-17.1% Y/Y) misses by $60M.

            Johnson & Johnson (NYSE:JNJ) declares $0.80/share quarterly dividend in line with previous

            Microsoft (NASDAQ:MSFT): FQ1 EPS of $0.76 beats by $0.08.
Revenue of $22.3B (+3.0% Y/Y) beats by $590M.

            McDonald's (NYSE:MCD): Q3 EPS of $1.50 beats by $0.01.
Revenue of $6.42B (-3.0% Y/Y) beats by $140M


   This Week’s Data

            September existing home sales rose 3.2% versus expectations of no increase.

            September leading economic indicators were up 0.2%, in line.


            The ‘happiness’ index (medium):


            Obamacare premiums are soaring (medium):

            Obama’s cure for Obamacare---more government intervention (medium):

            Quote of the day (short):


Foreign policy ‘elites’ eager for change (medium):

  International War Against Radical Islam

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