Wednesday, October 26, 2016

The Morning Call---Still no follow through

The Morning Call

10/26/16

The Market
         
    Technical

The indices (DJIA 18169, S&P 2143) once again couldn’t muster any follow through---this time to the upside.  Volume fell; breadth weakened.  The VIX was up 4%, closing below its 100 day moving average and in a short term downtrend---which remains supportive of stocks.  It bounced off the lower boundary of its very short term uptrend; its sixth higher low.  This is not a plus for stocks and 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] closed right on its 100 day moving average, now resistance; I am putting Monday’s break above this MA on hold and let today decide if the break is confirmed or negated, [b] above its 200 day moving average, now support, [c] within a short term trading range {1995-2193}, [d] in an intermediate uptrend {1968-2570} and [e] in a long term uptrend {862-2400}. 

The long Treasury was up fractionally, ending below its 100 day moving average and is developing a very short term downtrend.  However, it seems to have found support at a key Fibonacci level and, more importantly, remains in short, intermediate and long term uptrends.  It remains sound on a long term basis but is still struggling.

What a 1% rise in interest rates would mean (short):

GLD rose, but finished below its 100 day moving average (resistance) and within a short term downtrend.  The good news is that it ended back above its 200 day moving average, negating Friday’s break (now support) and continues to hold above a key Fibonacci level.  A ray of hope.

Bottom line: the indices inability to put together either a winning or losing streak continues to confirm my observation that they remain at an inflection point.  The only possible directional signal is the VIX making its sixth higher low of a very short term uptrend.  I would not be betting money on it; but it is something to watch.  Patience.

            Which way could it break (medium)?

            Insider buying drops to five year low (short):

    Fundamental

       Headlines

            After a good data day on Monday, yesterday was a disappointment: month to date retail chain store sales growth slowed, October consumer confidence fell, the October Richmond Fed manufacturing index was negative and the August Case Shiller home price index was flat.

            Better news overseas: October German business confidence was above expectations; the EU approved a new E2.3 billion package of financial aid to Greece.

            Yesterday was a big earnings report day; net, net the results were mixed.  However, in total to date, earnings are now up slightly---which if this trend held would break a string of four quarters of down profits. If that occurs, it clearly would be a positive.  However, we are still relatively early in the process.

            Here is some reading on topics that are increasingly a part of the current Market narrative:

            Elections impact the Market much less than you think (short):

            Investors aren’t ready for the pickup in inflation (medium):

            Russia apparently against oil production cuts (medium):

            $8 billion pulled from Deutschebank ETF unit (medium):

Bottom line: the trend in US economic stats has not really improved; however, after a couple weeks of mixed data, the international numbers have been pretty good this week; and perhaps best of all, this earnings season may be headed for a positive showing.  Offsetting that are rising concerns about inflation, rising odds of a December Fed rate hike and an OPEC production cut is far from a forgone conclusion. 

Judging by the pin action, none of this has provided enough clarity to resolve the current price impasse.  But as I said last week, ‘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.

            My thought for the day:  One of the biggest problems for most investors is the timing of their sales.  Many they think that they will ‘know’ when to Sell but have no firm discipline upon which to make that decision.  One of the lessons that they never seem to learn is that when a stock or Market turns, only one guy gets out unscathed---and the odds are enormous that it won’t be the investor.  Another rationale for developing our Sell Discipline is to force a Sale as the stock is rising; in other words, Selling when I can and not when I have to.

       Investing for Survival
   
            The long term is nothing but a succession of a bunch of short terms (must read):
               

    News on Stocks in Our Portfolios
 
International Business Machines (NYSE:IBM) declares $1.40/share quarterly dividend, in line with previous.

Canadian National Railway (NYSE:CNI) declares C$0.375/share quarterly dividend, in-line with previous

            C. R. Bard (NYSE:BCR): Q3 EPS of $2.64 beats by $0.09.
Revenue of $941.9M (+8.8% Y/Y) beats by $10.24M
C.H. Robinson Worldwide (NASDAQ:CHRW): Q3 EPS of $0.90 misses by $0.06.
Revenue of $3.36B (-1.8% Y/Y) beats by $30M.
Canadian National Railway (NYSE:CNI): Q3 EPS of C$1.25 beats by C$0.34.
Revenue of C$3.01B (-6.5% Y/Y) beats by C$660M.
General Dynamics (NYSE:GD): Q3 EPS of $2.48 beats by $0.10.
Revenue of $7.73B (-3.3% Y/Y) misses by $180M
Boeing (NYSE:BA): Q3 EPS of $3.51 beats by $0.89.
Revenue of $23.9B (-7.5% Y/Y) beats by $260M
Coca-Cola (NYSE:KO): Q3 EPS of $0.49 beats by $0.01.
Revenue of $10.63B (-7.0% Y/Y) beats by $90M
Economics

   This Week’s Data

            Month to date retail chain store sales were much lower than in the prior week.

            The August Case Shiller home price index was up 0.2%, in line.

            October consumer confidence came in at 98.6 versus estimates of 101.0.

            The October Richmond Fed manufacturing index was reported at -4 versus a reading of -8 in September.

                Weekly mortgage applications fell 4.1% while purchase applications declined 7.0%.

            The September US trade deficit was $56.1 billion versus forecasts of $60.5 billion.

   Other

            Figuring home resales (medium):

            More on student loans (medium):

           
Politics

  Domestic

The politics of rage (medium):

  International War Against Radical Islam


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