Monday, November 7, 2016

Monday Morning Chartology

The Morning Call

The Market

            Friday was the second day in a row that the S&P tried and failed to recover from an oversold condition---not a real good sign.  As you can see, it finished right its 200 day moving average and if it takes that out, there is little support until the lower boundary of its short term trading range.  However, that is a ways away; so I can’t get too beared up until or even if it attempts a challenge of that level.

            ***that appears unlikely, at least for today, as stocks are up big time before the open presumably on the news that the FBI has (again) found nothing inditable in Hillary’s emails.

            The long Treasury’s chart looks pretty ugly on a very short term basis; however, it has still not attempted any meaningful challenge of the lower boundaries of its short or intermediate term uptrends.  Until that occurs, the worse that can be said is that the TLT is experiencing a little heartburn in the midst of an otherwise healthy set of uptrends across all major timeframes.

            GLD is trying to regain some upside momentum.  Right now it is stuck at a key Fibonacci level.  It needs to successfully challenge that and then push through its 100 day moving average and the upper boundary of its short term downtrend before I will even consider re-establishing a position.

            As I noted previously, the VIX (22.5) is telling a more bearish story than the indices.  If it remains above the upper boundary of its short term downtrend through the close today, it will reset to a trading range.  There is some minor resistance around 26, then nothing until the upper boundary of its intermediate term trading range, circa 48.


            Last week’s stats was very evenly divided: nine positives, nine negatives and two neutrals.  However, the primary indicators weighed to the negative
            Primary indicators: October ISM manufacturing index (+), September factory orders (+), September personal income (-), September construction spending (-), October ISM nonmanufacturing index (-), October nonfarm payrolls (-) and September personal spending (0).  The score is now: in the last 57 weeks, seventeen were positive, thirty-six negative and four neutral.  So the data continues to argue against a Fed rate hike (by its logic).

Overseas, the data was also mixed.  I have said this before but it bears repeating---for the data just to be mixed is a major improvement from a month ago.  Going from consistently negative to mixed hopefully suggests that the global decline in economic activity has come to a halt.  It is still too early to tell; but if this trend continues, I can feel much more comfortable with my ‘muddle through’ scenario.

However, all is not improving internationally, (1) OPEC was unable to reach an agreement on an oil production cut.  If it remains so, it will likely weigh on global inflation and continue to frustrate central banks in their drive to push it higher, (2) more confusion arose in the UK when a court ruled that for the Brexit to be initiated, it must receive approval from Parliament and (3) the bad news continues for Deutschebank as Fitch put its debt on negative watch.

The central banks were in the headlines, (1) the FOMC completed its November meeting with barely a whimper, but it left a December rate hike on the table.  Not surprising given its proximity to the elections.  However, it did stay on message (rate hike in December) and suggested ever so carefully that inflation might be picking up, (2) the Bank of Japan left its accommodative monetary policy unchanged, (3) as did the Bank of England, though it warned that the falling pound could be cause for tightening.  For the moment, it appears that the Fed’s policies may become at odds with the rest of the central banks with the chance that the Bank of England could join it.  That is not apt to please market participants.

            Meanwhile, our own political situation is becoming messier.  I don’t care who wins, the acrimony has reached the point that in the next couple of years it is likely that the GOP will continue trying to tear itself apart and when it can find common ground, it will be spend its time trying to put Hillary in jail.  While I have always favored divided government, divisiveness is at an extreme and could negatively impact investor psychology.

            The bottom line remains the same: economic stagnation, irresponsible central bank monetary policy, overleveraged international banking institutions, potential political mischief both domestically and internationally and grossly overvalued equities.  Use strength to sell a portion of your winners and all of your losers.

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