Thursday, October 27, 2016

The Morning Call--Our own Groundhog Day

The Morning Call


The Market

The indices (DJIA 18199, S&P 2139) were mixed yesterday.  Volume was up slightly; breadth improved.  The VIX was up 6%, closing in a short term downtrend and below its 100 day moving average---but just barely.  In addition, it had strong follow through off the lower boundary of its very short term uptrend, which is not a good sign for stocks; and, as I suggested yesterday, this could be signaling that stocks aren’t likely to see much higher prices. 

The Dow ended [a] below its 100 day moving average, now resistance;  [b] above its 200 day moving average, now support, [c] within a short term trading range {17092-18693}, [c] in an intermediate term uptrend {11529-24374} and [d] in a long term uptrend {5541-19431}.

The S&P finished [a] below its 100 day moving average, negating Monday’s break and leaving it as resistance, [b] above its 200 day moving average, now support, [c] within a short term trading range {1995-2193}, [d] in an intermediate uptrend {1970-2572} and [e] in a long term uptrend {862-2400}. 

The long Treasury got popped, ending below its 100 day moving average, in a  developing a very short term downtrend and right on a key Fibonacci level as well as its 200 day moving average---potential bad news.  In addition, other segments of the debt market were also pounded.  While TLT remains in short, intermediate and long term uptrends, its struggle is getting more labored.

GLD fell, finishing below its 100 day moving average (resistance), within a short term downtrend, back below its 200 day moving average (now support), commencing a new challenge (if it remains there through the close next Monday, it will revert to resistance).  The only good news is that it continues to hold above a key Fibonacci level.  A fading ray of hope.

Bottom line: yesterday’s pin action continues to confirm my observation that stocks remain at an inflection point.  The only possible directional signal is the VIX making its sixth higher low of a very short term uptrend, giving strength to the notion that stocks may have seen their highs.

                More investors exiting equity mutual funds (short):



            Yesterday’s US economic data was mixed: weekly mortgage and purchase applications as well as September/August new home sales combo were negative, while the September trade deficit and the October Markit flash services PMI were better than anticipated.  No international stats; but an ECB official did make dovish comments on extension of QE.

            Mohamed El Erian on the potential December Fed rate hike (medium):

            Another opinion (medium):

            Some cognitive dissonance to the rising inflation thesis (short):

            Yellen has questions?????? (medium):

Bottom line: the news flow was fairly benign yesterday (mixed US numbers, no international data and [thankfully] no Fed speeches), though a roller coaster ride in oil prices seemed to generate the most attention.  That adds little clarity to the multitude on uncertainties facing investors which helps explain a flat market on low volume. 

We seem to be stuck in our own version of ‘Groundhog Day’; and the only out is likely a new development in one or more areas of uncertainty; though I haven’t a clue which. ‘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 (short and a must read).

            The latest from David Rosenberg (medium)
       Investing for Survival
            Why indexers do better than average

    News on Stocks in Our Portfolios
            W.W. Grainger (NYSE:GWW) declares $1.22/share quarterly dividend, in line with previous.

            Exxon Mobil (NYSE:XOM) declares $0.75/share quarterly dividend, in line with previous.

            United Parcel Service (NYSE:UPS): Q3 EPS of $1.44 in-line.
Revenue of $14.93B (+4.8% Y/Y) beats by $200M
            T. Rowe Price (NASDAQ:TROW): Q3 EPS of $1.17 misses by $0.01.
Revenue of $1.09B (+3.8% Y/Y) beats by $10M.
Qualcomm (NASDAQ:QCOM) has agreed to buy NXP Semiconductors (NASDAQ:NXPI) in a deal that values the chip maker at $110 a share, or $47B, including debt, as it seeks to expand the reach of its chips from phones to cars.
The combined company is expected to have annual revenues of more than $30B, serviceable addressable markets of $138B in 2020 and leadership positions across mobile, automotive, IoT, security, RF and networking
            Praxair (NYSE:PX) declares $0.75/share quarterly dividend, in line with previous.

            Praxair (NYSE:PX): Q3 EPS of $1.41 in-line.
Revenue of $2.72B (+1.1% Y/Y) beats by $20M.

   This Week’s Data

            The October Markit flash services index was reported at 54.8 versus the September reading of 51.9.

            September new home sales rose 3.1% versus expectations of a 1.3% increase; however, the August number was revised down 5.5%.

            Weekly jobless claims fell 3,000 versus consensus of down 5,000.

            September durable goods orders dropped 0.1% versus estimates of 0.2% increase; ex transportation, they were up 0.2% versus forecasts of up 0.1%.




Quote of the day (short):

  International War Against Radical Islam

            Putin on Syria (medium):

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