Saturday, November 26, 2016

Saturday Morning Chartology

The Morning Call

11/28/16

I have airport duty Monday Morning; so I am getting this out early.

The Market
         
    Technical

       Saturday Morning Chartology

            The S&P reset to a short term uptrend last week which puts in uptrends across all timeframes; it also means that it broke above a trading range dating back to early 2015.   I thought that I would give a long term chart to put this all in perspective.  As you can see, the S&P has no significant technical barriers between its current position and the upper boundary of its long term uptrend---giving it room to advance some more before having to challenge that boundary. Given the level of euphoria in this Market right now, it is easy to assume that it will challenge that boundary.  If I were a trader, (which I am not), it would make sense to buy (this would be a trade, not a long term investment) a very liquid Market ETF (VYM, VIG) but keep a very tight stop.
           


            Clearly, TLT has taken a shellacking in the last three months.  But it has a number of support levels that it has to overcome in order to move substantially lower: the lower boundaries of its short and intermediate term trading ranges, its 200 day moving average and the big kahuna, the lower boundary of its long term uptrend.




            Mirror, mirror on the wall; who is the ugliest of them all?  Gold.  Notice that there is virtually no support between its current price and the complete retracement of all of 2016’s advance.



            The dollar is pushing up against several (resistance) boundaries of its own.  It broke above the upper boundary of its short term trading range, then fell back below it (voiding the break) and now is once again over it.  If it remains there through the close Monday, it will reset to an uptrend.  However, it will be facing the upper boundary of its intermediate term trading range, which is also a key Fibonacci retracement level.  This all suggests that, from a strictly technical point of view, further increases will be a struggle.



            The VIX convincingly broke below the lower boundary of a very short term uptrend, suggesting the stocks have more upside.  But note that it is nearing the lower boundary of its intermediate term trading range (five years in the making), indicating that the upside could be limited.



    Fundamental

       Headlines

            The economic data last week was again quite positive: above estimates: October existing home sales, weekly mortgage and purchase applications, October new home sales, month to date retail chain store sales, October durable goods orders, the October Chicago national activity index and the November Richmond Fed manufacturing index; below estimates: weekly jobless claims, November consumer sentiment, the November Markit flash services PMI and October trade balance.  The score is now: in the last 60 weeks, twenty were positive, thirty-six negative and four neutral.
           
            By itself that is hardly an argument for an improving economy; however, (1) the last couple of weeks have been strong; and if that continues for another three or four weeks, then, at the very least, we can say that the decline in economic activity is likely over, (2) even if the data doesn’t improve near term, it seems reasonable to assume that the significant pick up in sentiment could begin to positively influence spending and investing decisions and (3) there is little doubt in my mind that if the GOP enacts the fiscal program that it says it is going to enact, it will be a plus, perhaps a meaningful plus, for the growth prospects of the economy longer term.

            But there are doubters (medium and a must read):

            In addition, the latest FOMC minutes were released on Wednesday and they did nothing to alter the view that a December rate hike is in the cards;

            That said, the dollar shortage is starting to cause problems globally, which argues against any tightening (medium and a must read):

            For example, funding problems continue in Europe as the repo market tightens.

            Overseas, the November EU Markit flash manufacturing, services and composite PMI’s came in better than expected; third quarter UK GDP was in line and November Japanese inflation was higher than expected.

            Finally:

(1)   several US banks have been added to the list of systemically dangerous banks list (medium):
           

(2)   OPEC continued its kabuki dance as almost all parties hinted that an agreement on production cuts was going to happen.  Then, the meeting was cancelled.

(3)   in other news, the Japanese government said that, in the future, it will rely more on fiscal policy to stimulate the economy.

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Politics

  Domestic

DOJ forces Denver sheriff’s department to hire illegal immigrants (short):


  International War Against Radical Islam

            Europe self destructing (medium):

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