Tuesday, November 1, 2016

The Morning Call---BOJ leaves rates unchanged

The Morning Call

The Market

The indices (DJIA 18142, S&P 2126) marched in place yesterday.  Volume rose; breadth negative, with the flow of funds indicator breaking down.  The VIX was up yet another 5%, closing in a short term downtrend but above its 100 day moving average for the third day, reverting to support, above its 200 day moving average for the second day (now resistance; if it remains there through the close on Wednesday, it will revert to support) and continued the strong follow through off the lower boundary of its very short term uptrend.  The implications for stocks are not good. 

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, now resistance, [b] above its 200 day moving average, now support, [c] within a short term trading range {1995-2193}, [d] in an intermediate uptrend {1972-2574} and [e] in a long term uptrend {862-2400}. 

The long Treasury ended up slightly on the day, closing below its 100 day moving average (now resistance), below its 200 day moving average for the third day (now support; if it remains there through the close today, it will revert to resistance), below a key Fibonacci level and in a developing a very short term downtrend.  In addition, it remained near the lower boundaries of its short and intermediate term uptrends.  It seems likely a challenge of these uptrends is coming.

GLD continued the slow plodding advance that began in early October, finishing above its 200 day moving average and key Fibonacci level.  But it is below its 100 day moving average (resistance) and within a short term downtrend.  This chart is improving; but a lot more is needed before I get enthused again.

Bottom line: stocks, bonds and gold were quiet yesterday while the VIX continued to spike---again not really normal for a tranquil, directionless market.  As you know I think this pin action a function of uncertainty over a number of unresolved economic/political issues.  Since this will be a big data week, includes two central bank meetings and the final messaging ahead of next week’s election, I wouldn’t expect any change in this pattern near term.

            Investment funds flow this year (short):



            Yesterday’s economic data was negative: September personal income was below estimates, while personal spending was in line, the October Chicago PMI was well below forecasts and the October Dallas Fed manufacturing grew much slower than in September.
            Overseas, the big news was OPEC’s failure over the weekend to reach an agreement on a production cut.  Not surprisingly, oil prices got slapped around.  Unfortunately, stock prices have been positively correlated to oil prices of late.  So if oil prices continue to sink it would likely be another weight on stock prices.

            As I noted previously, last week was a big one in this earnings season and it was modestly upbeat.  Here is a thorough update on third quarter earnings season (medium):


(1)   October UK manufacturing PMI was down slightly,

(2)   October Chinese manufacturing and services PMI’s were both well ahead of estimates.  If they are telling the truth, then the good news is that the Chinese economy may be improving; the bad news is that could lead to a reversal of the current easy monetary policy,

(3)   The Bank of Japan left key rates unchanged, said that it would continue to ‘manage’ its yield curve and [drumroll] the inflation rate continued to fall.

Bottom line: stock prices are on hold as investors are seemingly uncertain exactly how to price recent slightly better economic data, divergent central bank policies, the higher level of drama in US elections, a failed OPEC attempt at a production cut, currency turmoil in China, heighten US/Russian tensions in the Middle East, rising inflation concerns and the weakening EU financial system.  Clearly that is a lot to digest; so I am not being critical of investor worries. 

That said, I am critical on their pricing rationale.  Stocks on virtually any metric are dramatically overvalued.  So even if we faced none of the above potential problems, I can’t understand the ‘how to price’ part of investors’ dilemma.  And when these those problems are factored into the equation, I am baffled at their inaction---especially in the face of the bond guys laying some hurt on bond prices. 

I have no idea why or how much longer that this situation can continue.   But if you haven’t already, take the opportunity to build your cash position by lightening up on your winners and selling your losers.

            Asset prices are dangerously exaggerated (medium):

            The beginning of a new bull market? (medium):

            October was a record month for mergers (short):

            My thought for the day: investing is a game of percentages.  No one is ever right all the time, not even the best.  You shouldn’t expect to either.  Own that.  One of the best ways to put that to work is to learn to take losses quickly.  Small losses won’t kill your portfolio, but big losses will.  So have a Sell Discipline.  Mine is to Sell if a stock declines 15% below its cost.  That’s mine and there is nothing magic about it.  Have you own discipline and stick to it rigorously.

       Investing for Survival
            Which investment would you prefer?

    News on Stocks in Our Portfolios
            Boeing (NYSE:BA) declares $1.09/share quarterly dividend, in line with previous.

            Cummins (NYSE:CMI): Q3 EPS of $2.02 beats by $0.06.
Revenue of $4.2B (-9.1% Y/Y) misses by $30M
            Emerson Electric (NYSE:EMR): FQ4 EPS of $0.96 beats by $0.06.
Revenue of $5.5B (-5.3% Y/Y) misses by $10M.


   This Week’s Data

            The October Chicago PMI came in at 50.6 versus estimates of 54.3.

            The October Dallas Fed manufacturing index was reported at 6.7 versus the September reading of 16.7.


            This from the resident optimist (medium):

            Japan refutes old Keynesianism (medium):

            Update on big four economic indicators (medium):

            Two measures of inflation (medium):



  International War Against Radical Islam

            48% of Russians believe that Syrian conflict will lead to WWIII (medium):

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

No comments:

Post a Comment