Friday, December 16, 2016

The Morning Call--But not for long

The Morning Call

12/16/16

The Market
         
    Technical

Yesterday, the indices (DJIA 19852, S&P 2262) recovered Wednesday’s drubbing.  Volume remained huge; breadth improved keeping stocks in overbought territory.   The VIX (12.8) fell 3%, closing below its 200 day moving average (now resistance), below its 100 day moving average (now resistance) and within a short term downtrend.  However, it has successfully challenged a very short term downtrend, raising the question as to loss of downside momentum. The lower boundaries of its intermediate term trading range (10.3) and long term trading range (9.8) are close by---both of which were set back in 2006.
               
The Dow ended [a] above on its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {18224-20274}, [c] in an intermediate term uptrend {11627-24477} and [d] in a long term uptrend {5720-20271}.

The S&P finished [a] above its 100 day moving average , now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {2127-2471}, [d] in an intermediate uptrend {2004-2606} and [e] in a long term uptrend {881-2419}. 

The long Treasury (117.4) was up, but ended below its 100 day moving average (now resistance), below its 200 day moving average (now resistance), below a key Fibonacci level and in a very short term downtrend.  However, it closed back above the lower boundary of its short term trading range, negating Wednesday’s break. 

            And:

And, US Treasuries being dumped by foreign investors (medium):

GLD (107.3) was hammered again, finishing below its 100 day moving average (now resistance), below its 200 day moving average (now resistance), below the lower boundary of its short term downtrend and back below a key Fibonacci level.  There is not much stopping it from going to the lower boundary of its intermediate term trading range (100.0).

The dollar was up another 1%, back above the upper boundary of its short term trading range (for the fourth time) for the second day.  If it remains there through the close on today, it will reset to an uptrend.  It also finished above the upper boundary of its intermediate term trading range; if it remains there through the close next Tuesday, it will reset to an uptrend.

Bottom line: Wednesday’s declined may go in the record book as one of the quickest consolidations from one of the most overbought conditions.  That reinforces my assumption that the Averages will surmount the 20000/2300 levels near term and could challenge of the upper boundaries of their long term uptrends.

GLD and UUP returned to more normal behavior---a strong stock market, weak GLD and strong dollar all go hand in hand.  But it also suggests higher yields/lower bond prices, continuing TLT’s somewhat quizzical performance.
           
    Fundamental

       Headlines

            Lots of data releases yesterday and most of it was upbeat: weekly jobless claims, the December Philly Fed business outlook survey, the December NY Fed manufacturing index, the December Markit flash manufacturing index, the December housing index and the third quarter trade deficit were all better than expected.  The only disappointments were the November CPI headline and ex food and energy numbers.

            Overseas, the December EU flash manufacturing index was better than estimates while the services index was worse.

            *** overnight, China suffers failed treasury auction (medium):

Bottom line: yesterday’s economic data was clearly a positive; but I think that the Market itself continues to be the story.  Wednesday’s Fed (more hawkish than expected) surprise turned out to be a mere hiccup, despite the extremely overbought condition of the Market.  Most of yesterday’s narrative was focused either entirely on whether the indices would cross the 20000/2300 levels on that day or how the Fed’s move was not that big a problem for stocks.  To repeat what I said yesterday:  ‘At this point in time, it seems hard to imagine anything breaking the bullish spell that has been cast over the Market.’ 

            Goldman warns that rising yields pose risk to stocks (medium):

            My thought for the day: investors generally more frequently remember ‘good’ outcomes (their winning decisions) than they do ‘neutral’ or ‘bad’ outcomes (their losing decisions).  That leads them to remember all the great decisions that they made in the last six years and push memories of 2000 and 2008 aside.  Learn from your mistakes, not ignore them.

       Investing for Survival
   
            Betting on perfection.

    News on Stocks in Our Portfolios
 
            Oracle (NASDAQ:ORCL): FQ2 EPS of $0.61 beats by $0.01.
Revenue of $9.07B (+0.8% Y/Y) misses by $50M


Economics

   This Week’s Data

            The December Markit flash manufacturing index was reported at 54.2 versus the prior reading of 53.9.

            The December housing market index came in at 70 versus expectations of 63.

                November housing starts fell 18.6% versus estimates of a 7.0% decline; building permits dropped 4.7% versus forecasts of an increase of .9%.

   Other

            How badly will debt laden consumers get hurt by rising interest rates? (medium)

            Decline in Chinese yuan continues (medium):
           
Politics

  Domestic

  International War Against Radical Islam

            Nassim Taleb condenses the Syrian conflict (short):

            The irony of it all (medium):

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