Tuesday, October 11, 2016

The Morning Call---News from the BOJ

The Morning Call


The Market

Yesterday, the indices (DJIA 18329, S&P 2162) rallied, bouncing off their 100 day moving averages and the lower boundaries of their short term uptrends.  Volume declined; breadth was positive.  The VIX was down, closing below its 100 day moving average (resistance) 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 {18203-19926}, [c] in an intermediate term uptrend {11472-24317} 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 {2145-2381}, [d] in an intermediate uptrend {1957-2559} and [e] in a long term uptrend {862-2400}. 

The long Treasury was down again; although other segments of the debt complex rallied fractionally as they did on Friday.  It closed below its 100 day moving average (resistance) and below a third Fibonacci level. It remained within short term, intermediate term and long term uptrends.  TLT’s chart is still healthy but getting less so.

GLD was up slightly, but finished below a key Fibonacci level, below its 100 day moving average (resistance), in a short term downtrend.  However, it managed to recover back above its 200 day moving average, negating last Thursday break---this being the first positive development in the GLD chart since early July.

Bottom line: the Averages once again rebounded from the support offered by the lower boundaries of their short term uptrends and their 100 day moving averages---which suggests to me that so far either the stock guys aren’t worried about a December rate hike or they don’t believe that the Fed will act. 

TLT’s pin action is still pointing to a rate hike; though other segments of the debt market rallied yesterday, the first indication of doubt.  GLD rose fractionally yesterday but its ugly, ugly chart continues to suggest higher interest rates.


            No US datapoints were reported yesterday; indeed, this week is going to be a real snoozer aside from the release of the minutes from the last FOMC meeting.

Monetary limbo brings nowhere growth (medium):

            The Fed is afraid of its own shadow (medium):

This was offset by a barrage of foreign news:

(1)   the BOJ moved out the date for when it will achieve its 2% inflation goal.  It also stated that while it would was not going to lower rates at present, it was still prepared to initiate more QE,

UBS chairman warns of central bank intervention (medium):

(2)   September Chinese Markit services and composite PMI’s fell slightly,

(3)   August German exports were stronger than expected,

(4)   Deutschebank’s CEO has been unable to negotiate a settlement with the DOJ over its $14 billion fine.  The bank also said that it was reducing the size of its derivatives portfolio.  Finally, it was revealed that the ECB allowed the bank to cheat on its latest stress test,

(5)   Putin announced that Russia would go along with an OPEC production cut [please remember all these guys lie and cheap].

***overnight, October German investor confidence was better than expected; OPEC production soars to record high.

The other item to pay attention to this week is the start of the third quarter earnings season.  While it officially starts today, it got off to a very inauspicious pre-season last Friday when two industrial bell weathers (PPG, HON) reported and gave very disappointing guidance for future earnings growth prospects.  If these reports are an indication of things to come, this could bring some heartburn to the Market.  Of course, it is too soon to make that kind of prediction; but it is something that requires close attention.

            Winning the ‘beat the estimate’ game (medium):

Bottom line: barring exogenous events, this week’s headlines will focus on earnings and those aforementioned FOMC minutes.  How they affect the Markets will clearly depend on the element of surprise that they contain.

Over the weekend, we did receive more clarity on the questions that I raised last week regarding the direction of central bank monetary policy.  It came in the form of the BOJ weekend announcement that (1) it would not achieve its inflation goal on schedule and (2) while it is not lowering rates immediately, it stands ready to do so if needed.  So the score: have the central bankers realized their policies have been a failure (score: two no, one question mark); do they have the cojones to follow through when Markets throw a tantrum (score: two no, one question mark); how will the Markets react if they take QE, NIRP, ZIRP to a new level? (score: three question marks).

‘My bet is that nothing will change in central bank monetary policy until it is forced….  It also means that the underlying assumption has to be for higher stock prices, absent a ‘forcing’ event.’
            My thought for the day: investors generally focus their risk fears on the circumstances that caused the last Market upheaval---like the generals, they fight the last war instead of preparing for the next.  Today, that would mean concentrating on a potential collapse of the financial system.  To be sure, I list that as one of the major risks to the economy and the Market in every Closing Bell.  And I chronical the woes and crimes of US banksters as well as those in foreign banks; the most recent being Deutschebank.  However, when, as and if the Market rolls over, it is apt to be caused by something other than the insolvency of the banking system.  From an investment strategy viewpoint that means that any hedges/protections you set up to defend your portfolio in the case of a Market downturn should not be solely focused on the risk of bank insolvency.

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   This Week’s Data

            The September small business optimism index came in at 94.1 versus expectations of 95.0.

            Month to date retail chain store sales growth was one third of the prior week.


            IMF sounds alarm on global debt levels (medium):

                Speaking of global debt, here is the bear case (medium):



Tuesday morning humor (short):

  International War Against Radical Islam

            Saudi Arabia, Qatar and ISIS (medium):

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