The Morning Call
10/20/16
The
Market
Technical
Yesterday, the
indices (DJIA 18202, S&P 2144) managed to put together a second up day in a
row---a rarity of late. Volume increases;
breadth continued to improve. The VIX was
down another 6%, but closing [a] slightly below its 100 day moving average
(support; if it remains there through the close on Friday, 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] above its 100 day moving average, now resistance (if it remains
there through the close on Friday, it will revert to support), [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 was unchanged, 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 rose, but ended
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: the
Averages bounced yesterday; however, they continue to test their 100 day moving
averages (now resistance) with the S&P closing above its MA. This pin action continues to suggest turmoil
around an inflection point.
Fundamental
Headlines
Yesterday’s
US economic data was mixed: weekly mortgage and purchase applications were up; September housing starts were terrible
while building permits were ahead of consensus.
In addition, the Fed’s latest Beige Book report painted a rosy picture
of the economy.
Overseas,
September UK unemployment was reported, in line as did third quarter Chinese
GDP growth---however, industrial production was less than expected and retail
sales in line with growth driven by increased government spending, record bank
lending and a red hot property market.
***overnight,
the ECB left key interest rates unchanged.
I
have spent the last five years thrashing the Fed over the excess liquidity
created by QE, et al. As time went on, I
paid less and less attention to the money supply figures because, after a while,
all the liquidity pumping efforts of the Fed rendered them relatively
meaningless. Yesterday one of the guys
that I pay attention to pointed out that the money supply has been in a sharp
decline of late. If you can remember
that far back, there was a time when under normal monetary conditions, a
decline in the money supply usually was a sign of Fed tightening and forewarned
of rising inflation and/or a decline in economic activity. Of course, these are not normal times; so the
current actions by the Fed to shrink money supply may have little import. But it is another factor that we need to pay
closer attention to.
A
new study on the impact of QE on the economy and the financial markets
(medium): Bottom line: QEI worked, the
rest not so much.
Bottom line: the picture remains fuzzy regarding the economic
data: the trend in third quarter earnings reports (though as the season
progresses, the overall trend has been improving; nonetheless, it remains
early), the direction of central bank monetary policy (which, if not already
murky enough, is getting more so as inflation fears rise and, as mentioned
above, money supply shrinks), the economic consequences of a Brexit and an OPEC
production cut. 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.
My
thought for the day: remember that for investment managers career risk is more
important than Market risk. By that I mean
that this group is more concerned about looking bad if they fail than looking
good if they succeed. In other words,
they would rather take a guaranteed lost in a company that is a Street favorite
than the chance to make a profit in an unknown company. I remember back in the 1970’s when I was
working for a major investment counseling firm, I bought gold stocks for my
clients. My boss went nuts, excoriating me
because no one (at the firm) would criticize me for losing money in IBM (which
they did) but they would fire me (which they did) if I made money in gold stocks
(which I did).
Investing for Survival
Drawdown
based risk parity.
News on Stocks in Our Portfolios
Revenue
of $3.94B (+0.5% Y/Y) misses by $80M
Revenue of $3.5B (+4.5% Y/Y) in-line.
Economics
This Week’s Data
The
latest Fed Beige Book report showed that the economy was growing modestly,
labor markets were tight and real estate was healthy.
Weekly
jobless claims rose 13,000 versus expectations of up 4,000.
The
October Philadelphia Fed manufacturing index came in at 9.7 versus estimates of
7.0.
Other
Cass
Freight index takes another dive (medium):
Quote
of the day (short):
Possible
new investors in Deutschebank (medium):
Politics
Domestic
The carbon tax
(medium):
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
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