The Morning Call
The Market
Technical
The
indices (DJIA 12570, S&P 1355) suffered some severe whackage yesterday,
with both Averages breaking below the lower boundaries of their recently re-set
short term downtrends (12685-13152, 1363-1417).
In addition, the Dow penetrated the lower boundary of its intermediate
term uptrend (12761-17761), while the S&P is approaching its own uptrend’s
lower boundary (1345-1941).
On
the DJIA break of its intermediate term uptrend, our time and distance
discipline is now operative. However,
since the S&P is trailing the Dow, they are now once again out of
sync. If recent history repeats itself,
then the S&P will follow. However,
as I said yesterday, the intermediate term boundaries are apt to offer some
stiff support; so I don’t think that a flush is imminent. That said, if we do get one, then the next
support levels are at 13444/12022 and 1292/1266.
Volume
rose; breadth got crushed. The VIX
traded back above the lower boundary of its very short term uptrend. Since this occurred on the cusp of our time
element, if the VIX remains above the uptrend line, I am going to re-establish
the very short term uptrend. Meanwhile,
the VIX remains below the upper boundary of its short term downtrend and above the
lower boundary of its intermediate term trading range.
GLD
rose but still finished below its 50 day moving average. It continues to trade above the lower
boundaries of its short term uptrend and its intermediate term trading range.
Bottom
line: the technical picture went from
bad to worse with the Averages now challenging the lower boundaries of their
intermediate term uptrends. If those
support lines get broken, then stocks are probably in for a very rough
ride. However, as I said yesterday,
there will probably be a hell of fight before/if that occurs.
(1) with the
S&P now approaching Buy territory, I am making my list and checking it
twice (2) however, I will also focus on those stocks that are near breaking key
support levels but are a long way from their Buy
Value Range
Fundamental
Headlines
Lots
going on yesterday.
(1)
weekly mortgage and purchase applications were strong
but that reflected a rebound from Sandy’ impact the week before; October retail
sales were poor, but like mortgage applications, they also were influenced by
Sandy; October PPI was much more tame than anticipated; while September
business inventories and sales were quite strong. These latter two stats were clearly positive
and keep our forecast on track, ex the fiscal cliff and the implosion of Europe .
(2)
speaking of the implosion of Europe ,
we got the EU PMI ’s and they were not
pretty,
European PMI and recession (short):
Thursday morning humor or can we rely on
the forecasts of the Troika (short):
(3)
meanwhile, back at the OK Corral, after several weeks
of rocket attacks from Gaza , Israel Israel
(4)
the minutes of the last FOMC meeting were released; and
they reflected [a] general agreement that the economy was still struggling
{nothing new}, [b] more asset purchases are likely in 2013 {nothing new} and
[c] a cat fight over the guidelines to be used to determine when to stop the
current easy money policy. Question: if
they can’t figure out at this late date, in what has been the most massive
injection of printed money into our economy in history, what will trigger a
policy reversal, how confident can we be that they will get the trigger or the
timing correct? Or is this just a re-run
of every other Fed failure to restrain monetary growth before inflation takes
hold?
(5)
Obama held a news conference in which He addressed the [among
other things] fiscal cliff. In it, He
held very tight to the notion that tax rates had to rise. True, this could be a negotiating
position. But it was not greeted well by
the Markets. More important, rumors are
that He is going to insist on $1.6 trillion in tax increases---which is double
the amount He asked for last year in His failed negotiations with Boehner.
Equally
important, neither Obama nor anyone else in the dem camp is talking about
spending. Remember the deal that failed
in 2011 was two to three dollars of spending cuts for every one dollar of tax
increases. So the current negotiation
process is focused on tax increases with Obama’s opening bid twice what He
asked for last year and no mention of spending cuts. Meanwhile, the republicans are also talking
about the magnitude of the increase in tax revenues and have said almost
nothing about spending cuts. You see the
pattern here?
If we get a
‘grand bargain’, it will be a miracle.
More likely, the result will something close to my original assessment: a cross between falling off the cliff and
the ‘grand bargain’ and we may not get that until the very last minute; meaning
that: if our political class repeats its historic behavior pattern (1) it will
scare the living s**t out of taxpayers/investors before any deal is done, and
(2) it will be such lame ass excuse for a solution [more spending just not as
much, tax increases just not as much] that the economy is will still likely
experience some of the negative effects of the fiscal cliff anyway, to wit, a
slowdown in an already paltry rate of economic growth.
Obama has an uphill battle
(medium):
The math on spending, taxes and
the deficit (medium):
Bottom line: the economy at this moment in
time is doing about as well as we could expect.
Unfortunately, it faces two problems: (1) the fiscal cliff. While I continue to believe that our
political class won’t drive us off the cliff, they are likely going to make it
as painful as possible on all parties [except of course themselves] before it
happens and then it will probably be a far from optimal solution, (2) a
completely dysfunctional EU. The eurocrats
just can’t get their act together in spite of the fact that the economy is
going into the toilet and their citizenry is in revolt.
Clarity now is
the fundamental issue because prices are starting to reflect the potential for
something other than a Goldilocks resolution of the aforementioned
problems. How long it takes these morons
running the show to provide the necessary clarity is likely directly
proportional to how long equity prices remain in a state of malaise.
That said, lower
prices equal buying opportunities; and they are not that far away.
Subscriber Alert
The
stock price of UPS (UPS -$70)
has fallen below the lower boundary of its Buy
Value Range UPS .
The
stock price of Sun Hydraulics (SNHY -$24) has
traded below the upper boundary of its Buy
Value Range SNHY . However, no new shares will be purchased at
this time.
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