The Morning Call
Tomorrow is the Texas OU
game. It is an early game (11am ); that means, the pre-party starts a 8am .
Today is also filled with pre-game events; plus I need to do the signs
for the bus and finalize the skit---which is a long way of saying, no Closing
Bell tomorrow.
The Market
Technical
What
a difference a conversation can make.
The indices (DJIA 15126, S&P 1692) did their best impression of a
Titan III shot yesterday. The Dow surged back above the lower boundary
of its intermediate term uptrend (15002-20002), negating the potential break
down of this trend. It remains within
its short term trading range (14190-15550) but below its 50 day moving average.
The
S&P rose back above the lower boundary of the short term uptrend which it
confirmed as broken yesterday (1685-1835); depending on today’s pin action, it
is likely that this break will also be negated.
It also closed above its 50 day moving average. It finished within its intermediate term
uptrend (1598-2184).
Both of the
Averages are within their long term uptrends (4918-17000, 715-1800).
Volume was up,
but only slightly---a bit surprising for such a dramatic price increase. Breadth was up. The VIX fell 16%, closing well within its
short term trading range and its intermediate term downtrend.
The long
Treasury continued to snooze through the budget/debt ceiling stock
volatility. It was up fractionally and
remained within its short term trading range and its intermediate term
downtrend.
GLD
fell, finishing below the upper boundaries of its very short term, short term
and intermediate term downtrends. In
addition, it is nearing the neckline of a developing head and shoulders
pattern---a negative.
Bottom
line: the strength that the pin action
lacked on Wednesday was more than made up for yesterday. No doubt that part of the rally was a rebound
from an oversold condition, part of it was short covering; but clearly,
investor relief was palpable based on the assumption that the tail risk
associated with a default was being taken off the table via the resumption of
negotiations between the GOP house and Obama.
Strangely, at least to me, was that this emotional swing was based on
surprisingly little firm indication of a compromise other than the meeting
itself.
However, even if
we make the assumption that a deal gets done, the question is what difference
does it make long term? Certainly,
nothing has been done or is likely to be done to improve the long term economic
growth prospects. Indeed, I have argued
that it is likely that the Washington
antics have further damaged business and consumer confidence.
If the euphoria
continues and one of our stocks trades into its Sell
Half Range
Stock
Traders Almanac looks ahead (short):
Fundamental
Headlines
Yesterday’s
economic news was disappointing: weekly jobless claims rose substantially (but
much was attributed to the shutdown and a glitch in the California
computer system tracking unemployment benefits) and September retail chain
store sales were flat.
All
of which meant nothing, as investors read the news of an afternoon meeting
between Obama and house GOP leaders as a sign of diminishing tail risk from
default. At the moment, it looks like
there is chance of a six week extension of the debt limit in exchange for
negotiations talks on the budget.
****but
as Russell Dowripple said, ‘not yet’;
hope springs eternal.
Thoughts
on a potential rapprochement on the budget/debt ceiling problems from one of my
favorite liberal blogs (medium):
Of
course, there are two games going on here.
One is just to avoid the problems associated with a government
default. The other which is nothing more
than a gleam in republicans eyes right now, is that the aforementioned budget
negotiations would involve a ‘grand bargain’, i.e. entitlement reform (read
reduced spending) and tax reform (read lower rates and broaden the base). To be sure, a ‘grand bargain’ would be an
enormous positive and would alter the assumptions in our Model. However, it is, as I said, simply a gleam in
the GOP’s eye. I can’t imagine such an
out come barring a substantial change in congressional membership---meaning
after November 2014; and therefore, it is nothing on which I would make a bet
today.
At the moment,
about the only thing I would bet on is a six week kick the can down the road respite
before we are once again faced with a problem.
Bottom line:
‘(1) the shutdown is not a significant
economic risk, ---still true,
(2) a government default on its debt
following a stalemate on the debt ceiling could cause problems [higher interest
rates, declining dollar],---still true,
(3) the rhetoric notwithstanding, a
stalemate is a no win strategy for the party that the electorate faults; they
will read the polls and salvage what they can,---it looks like the GOP
is folding,
(4) there is some small probability that
this judgment is far too optimistic, that the shutdown/debt ceiling won’t be
resolved which would likely do considerable damage to the Markets,---this
is appears to being taken off the table,
(5) there is a larger probability that
the whole process, even if it ends well, [a] will cause investors to rethink
their current overly optimistic view of the Market and stocks could trade down
to Fair Value {S&P 1440} and [b] will reinforce businesses and consumers
unwillingness to invest and spend; and hence, doing nothing to lessen the
economic headwind of a highly unreliable fiscal policy, and finally ---to
be determined.
(6) given our Portfolios large cash
position, neither (4) nor (5) above represent a calamity; indeed, that is the
point of our Price Disciplines---sell high, but low.’ ---still true.
Following
Street forecasts (medium):
Living
in a low return world (medium):
Food
for thought (medium):
Today’s
must read article on US
debt. The quote of the day from this
article ‘collapsing bubbles are deflationary’ (medium)
No comments:
Post a Comment