Tuesday, January 3, 2017

Tuesday Morning Chartology

The Morning Call

The Market

       Tuesday Morning Chartology

            The S&P couldn’t take out the 2300 level, despite the persistent talk (hope) of the last two weeks.  However as you can see, it took out some minor support (horizontal green line) and a very short term uptrend.  It is way too soon to be making much of this performance.  The S&P had come a long way; and how many times did I say that it was extremely overbought?  However, I should note that stocks have lost two positive seasonal factors: the Santa Claus rally and the lack of tax selling due to the powerful late year rally.

            The long Treasury managed to hold above the lower boundary of its short term trading range, likely helped by the nearness (roughly two points lower) of the lower boundary of its intermediate term trading range.  However, this remains a very damaged chart, given (1) the steep decline on heavy volume and the rebound on lighter volume and (2) the 100 day moving average has crossed below the 200 day moving average, usually a signal to expect lower prices.

            Like TLT, gold bounced off the lower boundary of a (intermediate term) trading range but remains a sick chart.  It is in very short term and short term downtrends and, also like TLT, its 100 day moving average has crossed below its 200 day moving average.

            The dollar seemed to have successfully made the challenge to the upper boundary of its intermediate term trading range and reset to an uptrend.  However, the beating it took last Friday, prompts me to hold off on that call for a day or two.  I left the boundaries of the intermediate term trading range and drew the boundaries of a reset uptrend.

            The VIX spiked almost 33% in the last two week, unable to give a real challenge to the lower boundary of its intermediate term trading range and recovering above its 200 day moving average.  It has to remain above that MA through the close on Thursday to reset it to support.  However, given the proximity of the 100 day moving average plus its recent volatility, this story is likely to change either by taking out the 100 day moving average and moving on to challenge the upper boundary of its short term downtrend or reversing and making another try at the lower boundary of its intermediate term trading range.

            Bottom line: if you have traded the recent uptrend and not been stopped out, I would hold to my stop; if you have been stopped out, stay out and watch the strength of any rally.  If you are a long term investor, I would continue to take some profits in my winners and dump my losers.  The long Treasury and gold are pointing to higher interest rates.  If those trends continue, sooner or later that will start negatively impact stock prices.



In the week before Christmas, both the total economic data and the primary indicators were negative.  In the week before New Year’s the total economic data was negative and there were no primary indicators reported.  This continues the return to weaker stats.  The score is now: in the last 65 weeks, twenty-one were positive, forty negative and four neutral.

In other news, I saw that Deutschebank settled its suit with the DOJ for far less than the original amount.  That is a plus though it hardly diminishes the point that these guys are reckless with their depositors’ money and remain a risk to global financial stability.

The Italian government took the first steps to bail out Monte Paschi.  See above.

The Chinese government continues to implement additional controls on its currency as the yuan continues to depreciate; so central bank monetary policy also remains a risk.

                        ***overnight, the December Chinese and UK manufacturing PMI’s were both up, while the December German inflation rate was much higher than expected.

            Bottom line: the economy is not improving.  Although the Trump euphoria is starting to show up in business and consumer sentiment surveys, it clearly needs to start being reflected in the real numbers.  Stocks remain overvalued primarily as a result of central bank malfeasance.  That may be coming to a head.  As I have said before, I am less concerned about the impact on the economy and believe that it will be largely reflected in the mean reversion of asset mispricing and misallocation.

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