Friday, October 7, 2016

The Morning Call---ECB folds like a cheap tent

The Morning Call

10/7/16

Tomorrow is the UT/OU game.  Guests start arriving around noon today. So I will be partying until Sunday at lunch.  No Closing Bell this week.  Go Sooners.

The Market
         
    Technical

Yesterday, the indices (DJIA 18268, S&P 2160) ended roughly flat with Wednesday (Dow down slightly, S&P up a point).  Volume was flat; breadth mixed to slightly positive.  The VIX was down 1%, closing below its 100 day moving average and in a short term downtrend---which remains supportive of stocks.  Nonetheless, it is still in a very short term uptrend---a negative. 

The Dow ended [a]  above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {18176-19899}, [c] in an intermediate term uptrend {11437-24282} 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 {2142-2378}, [d] in an intermediate uptrend {1955-2557} and [e] in a long term uptrend {862-2400}. 

The long Treasury had another bad day on heavy volume; although other segments of the debt complex rallied fractionally.  It closed below its 100 day moving average for the third day, reverting from support to resistance.  It did manage to finish within short term, intermediate term and long term uptrends.  TLT’s chart continues to deteriorate.

Muni’s about to get a promotion (short):

GLD was down 1% on heavy volume, finishing below a key Fibonacci level, below its 100 day moving average for the third day (reverting from support to resistance), below the lower boundary of its short term trading range for the third day (resetting to a downtrend) and below its 200 day moving average (if it remains there through the close Tuesday, it will revert to resistance).  This chart keeps worse.

Bottom line: the divergence between stocks and bonds/gold continued yesterday, leaving open the question as to whether the stock guys are tip toeing through the tulips or I am going to be wrong about higher rates disrupting the Market or this is just a lot noise. 

    Fundamental

       Headlines

            Only one US datapoint yesterday: weekly jobless claims were better than expected.  This week’s numbers have been pretty balanced, so there is not a lot of directional information.

There was only one international stat: August German factory orders were strong.  Overseas data has been upbeat this week---for a change.

            The other news item yesterday came from….drumroll….the central bankers.  In this case, the ECB denied the earlier ‘taper’ rumor (short):

            Plus, Deutschebank received support from yet another group (medium):

            ***overnight (medium):

            Though the evidence continues to pile up of its shady dealings in the derivatives market (medium):

Bottom line: the ECB was the first to blink on normalizing monetary policy---so we are starting to get some answers to my earlier questions: have the central bankers realized their policies have been a failure (score: one no, two question marks); do they have the cojones to follow through when Markets throw a tantrum (score: one no, two question marks); how will the Markets react if they take QE, NIRP, ZIRP to a new level? (score: three question marks).

On the other hand, the Fed chieftains are driving for the rate hike hoop, so we will get further answers on or near the December FOMC meeting---unless we get some extraordinary data one way or the other (see nonfarm payroll report below).  Of course, if they have realized their failures, then the stats won’t make any difference---though that runs counter to everything that they have done to date.

That leaves the Bank of Japan which has been quiet of late, following the initial pillow fight over current (QE, NIRP) policies.  That can’t last; but clearly I have no idea what the outcome will be.

My bet is that nothing will change in central bank monetary policy until it is forced---which makes the ECB a leading indicator of Fed and BOJ policy.  It also means that the underlying assumption has to be for higher stock prices, absent a ‘forcing’ event.
           
            Mohamed El Erian on the Market (medium):

            Updated look at the Buffett indicator (short):

            Update on margin debt (short):

            My thought for the day: there is no such thing as high returns without high risk---no matter what your broker/financial advisor says.  However, there is such a thing as high risk without high returns---like when you don’t do your homework, you believe some cock and bull story about a ‘sure thing’ or you think that it is a great idea to buy stocks at historically high multiples.

       Investing for Survival
   
            Avoiding financial stress during the holidays.


    News on Stocks in Our Portfolios
 
Qualcomm (NASDAQ:QCOM) declares $0.53/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

            September nonfarm payrolls grew 156,000 versus expectations of up 168,000; the unemployment rate rose to 5%.  It will be interesting to see how the Fed handles this number.

   Other

            US business bankruptcies rise (medium):

            More on the proposed OPEC production cuts (medium):

Politics

  Domestic

Not firing anyone and giving them more money is a real poor way to fix things (short):

  International War Against Radical Islam

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