Monday, December 28, 2015

Making Smart Investments in 2016!

With the New Year right around the corner, there is no better time than now to invest in 2016.  But with the various factors affecting the markets, you need to be selective while allocating your money.  Listed are a few factors that you should consider when investing you money in 2016.
·         Year-End Investing Strategies Rebalance Your Portfolio – This only needs to be done once a year, so the end of the year is a great time to do so.  You can see how your investments performed during the past year and where you should focus your attention in 2016.

·         Invest In What You Understand – It is necessary to understand the business you are going to invest in.  Otherwise it will be difficult to recognize truly meaningful information that should factor into your decision-making.

·         Make Stocks the Foundation of Your Strategy – Investors need stocks in their attempt to grow their portfolio and outpace inflation.  This goes back to our previous bullet when you are researching stocks to invest in, make sure you fully understand every aspect of the business.

Investing in the New Year can bring great opportunity for you to grow you financial portfolio.  If you are thinking about making high yield investments and growing you financial portfolio this year, give me a call at (214) 535-1573.  I’d be happy to help you start off the New Year just right!

Wednesday, December 23, 2015

Quick review of the week

The Morning Call


12/24/15
The Market
         
    Technical


            The S&P has negated the challenges to its short term trading range and its 100 day moving average this week.  Notice that once again the 100 day moving average has become firm support; but also note that it is trending down.  In other words, the support is weakening.  Also note that while the S&P could break through a very, very short term downtrend, it is nowhere near breaking the trend of lower highs.  To get to the upper boundary of its long term uptrend, the S&P will have to take out that very, very short term downtrend, break above the last lower high, and break above the all-time high.  That is a lot of work, even for Santa’s rally.   Meanwhile, breadth is nothing to write home about and volume is declining.



            The VIX is challenging a very short term uptrend.  If successful, it will point to higher stock prices near term.  However, it is also getting close to the 12-13 price level which I continue to believe is very cheap portfolio insurance.



    Fundamental

            The economic data this week was balanced, though the primary indicators were negative: durable goods orders (+), personal income (+), personal spending (0), third quarter GDP (0), new home sales (-), existing home sales (-), third quarter corporate profits (-), durable goods orders, ex transportation (-).  There were few numbers from overseas, most notable being lousy UK third quarter GDP, the continued depreciation of the yuan and a renewed effort by the Bank of China to pump up the level of QE. 

In short, no let up the economic deterioration both here (now fourteen out of the last seventeen weeks) and abroad (still batting 100%).  So no change in our forecast.  Indeed, the risk of recession continues to rise.  And no change in the gross overvaluation of stocks.
  







Monday, December 21, 2015

Saving Tips during the Holiday Season

Preparing for the Holidays is surely something to take seriously!  There are so many things to do like hanging the lights, getting the perfect tree, and searching for the perfect gift for friends and family.  The holidays can also cost us a little more than usual this time of year.  Fortunately, there are many ways to save on certain expenses.  Here are some tips to keep in mind while preparing for the most wonderful time of the year!

·         Gift Creatively – You do not have to spend a ton of money to show someone that you care.  Many people would be thrilled to receive a handwritten card or a gift you made yourself.  There are many websites like Pinterest that have great DIY craft ideas.

·         Save on the Holiday Party – This year rather than providing all the catering yourself, recommend having a potluck where everyone brings either a food dish or a dessert.  It’s a great way for everyone to try something different!

·         Enjoy Free Holiday Activities – The holidays offer plenty of activities that don’t cost a penny!  Check out your local newspaper for holiday shows, drive around your community to enjoy neighbor’s lights, or make ornaments and decorations from scratch with the family.

There’s no need for you to spend a ton of money during this year’s holiday season.  If you follow these tips and more, you will save tremendously.  If you are looking to grow your wealth with portfolio management strategies in 2016, give me a call at (214) 535-1573.

Friday, December 18, 2015

The Morning Call--Today could be very volatile & Happy Holidays

The Morning Call

12/18/15

Our daughter and her family arrive this afternoon, starting the Christmas season.  I am taking off the next two weeks; back on January 4.  As always I won’t be far from my computer.  So if Market impacting events or extreme Market volatility occurs and warrants moves in our Portfolio, I will be in touch.  Happy Holidays.

The Market
         
    Technical

So much for post Fed meeting euphoria.  The indices (DJIA 17495, S&P 2041) retreated broadly yesterday.  The Dow ended [a] above its 100 moving average, which represents support, [b] back below its 200 day moving average, now resistance; this negates Wednesday’s challenge, [c] within a short term trading range {16919-18148}, [c] in an intermediate term trading range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and has now made yet another lower high.

The S&P finished [a] above its 100 moving average, which represents support, [b] back below its 200 day moving average, now resistance; this negates Wednesday’s challenge, [c] in a short term trading range {2016-2104}, [d] in an intermediate term uptrend {1984-2777}, [e] a long term uptrend {800-2161}, [f] and like the Dow has marked a new lower high. 

Volume was down as was breadth.  The VIX (18.4) rose 6%, ending [a] right on  its 100 day moving average, now support; this negates Wednesday’s challenge, [b] within short term, intermediate term and long term trading ranges. 
           
The long Treasury jumped over 1%, closing back above its 100 day moving average, now support; this negates Tuesday’s challenge.  It is also within very short term, short term and intermediate term trading ranges.

GLD plunged 2%, finishing [a] below its 100 day moving average, now resistance and [b] within short, intermediate and long term downtrends. 

Bottom line:  I said yesterday that it will probably be next week before we fully know the Market’s reaction to the Fed rate hike.  So just as I didn’t consider Wednesday’s moon shot a true reflection of investors’ overwhelming approval of the hike, I don’t think yesterday’s pin action was buyer’s regret.  We still have to get through one of the biggest options expiration ever today.  Even then, the bias of a Santa Claus rally will still likely have some influence. 

I continue to have no feel for the short term direction of the Market.  Longer term, (1) the numerous divergences below the Market surface, (2) the turmoil in the high yield debt market which historically has anticipated problems in the stock market, (3) my long held belief that the end of QE will be bad for the stock market, (4) along with our assessment that stocks are very richly valued I believe argues against a successful challenge of the upper boundaries of the indices long term uptrends and for a decline to significantly lower levels.

    Fundamental

       Headlines

            By way of a brief summary to this week:

(1)    the economic data yesterday [November leading economic indicators {+}, weekly jobless claims {0}, the Philly Fed index {-} and the third quarter US trade deficit {-}] and for the week were once again negative.  This marks the thirteenth week out of the last sixteen that point to a slowing US economy.  Further the international economic numbers showed no improvement; and, importantly, China has been on a ten day devaluation streak, suggesting that conditions there are not meeting ‘official’ guidelines.  The possibility of recession remains on the table, though I keep hoping those three weeks of positive to neutral stats reflect a leveling of growth at a reduced level.  I am leaving our forecast unchanged, but a weakened global economy remains a major risk to our forecast,

***overnight, the fourth quarter Chinese ‘Beige Book’ reflected deteriorating economic conditions across broad geographic and industrial sectors.

(2)   our elected official appear close to passing an omnibus spending bill whose content in no way matches the rhetoric out of the GOP which controls both houses.  I see no reason why fiscal policy won’t remain a drag on the economy whoever wins next November,

The new budget is still a crap sandwich (medium):

(3)   the Fed finally did the dirty deed, raising the Fed Funds rate by 25 basis points.  I continue to believe that [a] the unwind of QE should have started 18 months ago, [b] this will be more of a plus than a negative for the economy but more of a negative than a plus for the Markets---making Fed policy [or the lack thereof] the second major risk bearing on the economy.
           
The Fed’s first step in setting/maintaining the new higher interest rate (short):

 This is a great analysis of the Fed’s (Yellen’s) twisted reasoning for Wednesday’s rate hike.  However, I disagree on the cause of this lack of logic.  The author alleges that the banks pressured the Fed to raise rates in order to jack up their (the banks) profits---which is a bit too conspiratorial for me.  The simpler explanation, at least to me, is that Fed made the same mistake it has always made, to wit, waiting too long to transition from easy to tight money, and now it is trying to bulls**t its way out of this mistake. (medium):

                  More on the rate hike decision and what it could mean (medium):

                  SocGen: you are too late, Janet (medium):

                  The latest St. Louis Fed financial stress index (short but a must read):

                  One of the economic positives of the rate hike (medium):

                  Living in the aftermath (medium):

Bottom line:  the most positive assumption about the economy is that it is bumping along at a reduced rate of growth, Yellen’s comments notwithstanding.  Hopefully between the recent three weeks of more upbeat data and the positive impact I think that beginning of the end of QE can have, the US can avoid recession.  Unfortunately, the economy is getting no help from our ruling class in the form of a more growth oriented fiscal policy, from the global economy which continues to deteriorate or from global central banks which are in the midst of competitive valuations.  In short, the US may avoid a recession but not because of anything other than the ingenuity and hard work of American business and labor.

That said, because the Market has smoked under the QE regime, I continue to believe that it will be negatively impacted by the demise of QE.  It may take some time; after all, the beginning of the end of QE is a pretty pathetic attempt toward normalization.  Nevertheless, I think that the stock market is so overvalued and its internals are so broken and that the high yield debt market has deteriorated too such an extent that mean reversion will begin to weigh heavily on the stock market. 

I am not suggesting that investors run for the hills.  I am suggesting that they use the Market strength to take some profits in winners and/or eliminating investments that have been a disappointment.

            Portfolio advice (medium):

            Bank of America turns negative (medium):

       Investing for Survival
   
            The danger of selective memory:
           
    News on Stocks in Our Portfolios
 
Economics

   This Week’s Data

            November leading economic indicators rose 0.4% versus expectations of up 0.2%.

   Other

            The important role of recessions (medium and a must read):

Politics

  Domestic

  International War Against Radical Islam

            ISIS latest action; this time in Sweden (medium):
           
More tough talk from Putin (medium)





Thursday, December 17, 2015

The Morning Call--Everything coming up roses

The Morning Call

12/17/15

The Market
         
    Technical

The indices (DJIA 17749, S&P 2047) smoked yesterday.  The Dow ended [a] above its 100 moving average, which represents support, [b] above its 200 day moving average, now resistance; if it remains there through the close next Monday, it will revert to support, [c] within a short term trading range {16919-18148}, [c] in an intermediate term trading range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and still within a series of lower highs.

The S&P finished [a] above its 100 moving average, which represents support, [b] above its 200 day moving average, now resistance; if it closes there through the close on Monday, it will revert to support, [c] in a short term trading range {2016-2104}, [d] in an intermediate term uptrend {1982-2775}, [e] a long term uptrend {800-2161}, [f] still within a series of lower highs. 

Volume was flat; breadth improved.  The VIX (17.8) fell 15%, ending [a] below its 100 day moving average, now support; if it remains there through the close on Friday, it will revert to resistance, [b] within short term, intermediate term and long term trading ranges. 

            And:

            And:

The long Treasury declined again, closing below its 100 day moving for the second day, now support; if it remains there through the close on today, it will revert to resistance.  It is also within very short term, short term and intermediate term trading ranges.

GLD rose, finishing [a] below its 100 day moving average, now resistance and [b] within short, intermediate and long term downtrends. 

Bottom line: I have to admit I was surprised by the Market’s enthusiastic reception of the Fed rate decision.  As I have noted several time, this had to have been to most discounted Fed move in a long time; so I had expected a more muted reaction.  That said, this pin action was also likely influenced by the end of tax loss selling, the soon to arrive Santa Claus rally and tomorrow’s giant options expiration.  How much so, I have no idea.  It will probably be early next week before we know the answer.

I continue to have no feel for the short term direction of the Market.  Longer term, the numerous divergences below the Market surface, the turmoil in the high yield debt market which historically has anticipated problems in the stock market along with our assessment that stocks are very richly valued I believe argues against a successful challenge of the upper boundaries of the indices long term uptrends and for a decline to significantly lower levels.

    Fundamental

       Headlines

            Yellen’s upbeat assessment of the economy notwithstanding, yesterday’s stats were not that great: November housing starts and building permits were stronger than expected; however, weekly mortgage and purchase applications, November industrial production and the December manufacturing PMI flash index were all below forecasts.

            Overseas, the numbers weren’t any better:  the Bank of China lower its GDP growth estimates for 2016 and the December French Markit composite PMI fell.

            ***overnight, the IMF told Ukraine in must negotiate in good faith with Russia over a $3 billion note due on Sunday in order to receive its next round of bailout money; German  December business confidence fell slightly; the Chinese yuan fell for the ninth day in a row.

            Of course, the big news of the day was the Fed rate decision and the tone of its accompanying statement---and as in noted above, it kept investors tip toeing through the tulips.  In sum:

(1)   raised the Fed Funds rate by 25 basis points; however, it took no action to reduce the size of its [bloated] balance sheet,

(2)   reasoned that the economy had, at last, achieved its objective [ignoring the high level of drop outs from the labor forces and that inflation is nowhere near its benchmark],

(3)   changed to a [more complicated] formula that would determine the timing and size of future rate increases or shrinkage of its balance sheet---though Yellen declined to provide clarity on how the new criteria will be used to make those judgments.

In short, the Fed raised rates but its post-meeting statement as well as Yellen’s comments were very dovish.

            The FOMC statement:

            The Fed’s economic projections:

            Fed whisperer Hilsenrath’s comments (medium):

Bottom line:  I remain puzzled by the Fed’s public assessment of the economy.  The trend, well documented in these pages, is not great.  Indeed, the numbers were better before the last Fed meeting than this; or said another way, they have deteriorated since the last meeting.  And today’s and this week’s stats are just the most current example.  You don’t have to take my word for it.  If you look at the bond market’s assumptions as reflected in current rates and spreads, it is much less enthused about the economic prognosis.  In fact, it is pricing higher odds of a rate CUT at the next FOMC meeting than a rate HIKE. 

That said, as long as none of this seems to matter to stock investors, equity prices will continue to advance.  Certainly, the seasonal bias will help things along.  Nonetheless, I think that the economy has weakened too much, that the stock market internals are so broken and that the high yield debt market has deteriorated too such an extent that mean reversion will begin to weigh heavily on the stock market. 

One other item.  My long held belief that an end of QE will be neutral to positive for the economy but negative for the Market is now going to be tested, the pitifully weak reversal notwithstanding.

I am not suggesting that investors run for the hills.  I am suggesting that they use the Market strength to take some profits in winners and/or eliminating investments that have been a disappointment.
     

            Let me back up for a second and give an investment strategy view from 30,000 feet.  In the last six months the divergences inside the Market have been as pronounced as I have seen in my career save the 1970 ‘nifty fifty’---energy, emerging markets and now high yield debt aren’t just showing signs of weakness, they are getting crushed.  So much so that despite the fact that large segments of the stock market continue to be dramatically overvalued, the aforementioned have already experienced their own bear markets, being down 30% to 50% or more.

            While I still believe that stocks in general will eventually catch down, so to speak, our Buy Discipline still suggests that purchases be made when assets reach their Buy Value Range, especially if they have suffered price declines on the order of magnitude noted above.  That is why our Portfolios bought energy related stocks/ETFs several weeks ago and why our ETF is buying high yield today.

            That said, they could very well suffer more when the rest of the Market follows them down, so the hedge here is to start buying but average in over time.

       
Economics

   This Week’s Data

            November industrial production fell 0.6% versus expectations of down 0.2%; capacity utilization fell to 77.0 from 77.4 in October.

Update on big four indicators (medium):

            The December manufacturing PMI flash index was reported at 51.3 versus estimates of 52.8

            Weekly jobless claims fell 11,000 versus forecasts of down 12,000.
           
            The December Philadelphia Fed manufacturing index came in at -5.9 versus projections of +1.2.

            The third quarter US traded deficit was reported at $124.1 billion versus consensus of $119.0 billion.

   Other

            Latest on student loans (short):

Politics

  Domestic

  International War Against Radical Islam

            The FBI’s problem with muslim leaders (medium):

            US foreign policy becomes ever more convoluted (medium):





Wednesday, December 16, 2015

The Morning Call---The most discounted rate hike in history

The Morning Call

12/16/15

The Market
         
    Technical

The indices (DJIA 17524, S&P 2043) continued their bounce off a very oversold condition yesterday.  The Dow ended [a] above its 100 moving average, which represents support, [b] below its 200 day moving average, now resistance, [c] within a short term trading range {16919-18148}, [c] in an intermediate term trading range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and still within a series of lower highs.

The S&P finished [a] back above its 100 moving average, negating Friday’s break; it remains support, [b] below its 200 day moving average, now resistance, [c] in a short term trading range {2016-2104}, [d] in an intermediate term uptrend {1982-2775}, [e] a long term uptrend {800-2161}, [f] still within a series of lower highs. 

Volume declined; breadth improved.  The VIX (21.07) fell 7%, ending [a] above its 100 day moving average, now support, [b] within short term, intermediate term and long term trading ranges. 

The long Treasury declined again, closing below its 100 day moving, now support; if it remains there through the close on Thursday, it will revert to resistance.  It is also within very short term, short term and intermediate term trading ranges.

            More on the high yield debt sell off (medium):
           
            From the resident optimist (medium):

            Counterpoint (medium):

GLD declined 1.2%, finishing [a] below its 100 day moving average, now resistance and [b] within short, intermediate and long term downtrends. 

Bottom line: the Averages provided the strong follow through out of oversold territory---pin action much more consistent with their deep technically oversold condition than Monday’s paltry rise.  That said, technicals will probably have less impact on trading right now than what occurs with today’s FOMC rate decision and the current options structure going into Friday.

I continue to have no feel for the short term direction of the Market.  Longer term, the numerous divergences below the Market surface, the turmoil in the high yield debt market which historically has anticipated problems in the stock market along with our assessment that stocks are very richly valued I believe argues against a successful challenge of the upper boundaries of the indices long term uptrends and for a decline to significantly lower levels.
           
            Is ‘tax loss selling’ season over? (short):

    Fundamental

       Headlines

            Yesterday’s US economic news was mixed to negative: the December NY Fed manufacturing index was less bad (-4.59) than expected (-7.0), November CPI was in line (0.0%), the housing index was below estimates and month to date retail chain store sales were less than in the prior week.  Not helpful.

            There was no international data releases.

            ***overnight, the Bank of China lower its GDP growth estimates for 2016; the December French Markit composite PMI fell to 50.2 versus November’s 51.0 reading.

            Of course, everyone is focused on the FOMC meeting which will end today, accompanied by its rate decision and Fed’s rationale for it.  Although there is plenty of dissent as to the wisdom of a rate increase, there seems to be universal acceptance that it is going to occur---making this the most widely discounted rate hike in years.  Will this lead to a ‘sell the news’ Market reaction?  The answer likely rests with the narrative in the news conference following the meeting/decision; that is, will the policy statement be some mealy mouthed apology and a promise to not be aggressive in continuing to raise rates in the future or will it have a more hawkish tone?  I have no answer; but we will know later today.

            Here are several opinions from others:

            Three charts the Fed should consider (medium):

            A map of prior Fed rate hikes (medium and today’s must read):

            You think that I am rough on the Fed; read this merciless hammering of Fed policy (medium):

            Stephen Roach weighs in (short):

            Why low interest rates may be part of the new normal (medium and a must read):

Bottom line:  Paraphrasing my comments from yesterday, I think that the economy has weakened too much, that the stock market internals are so broken and that the high yield debt market has deteriorated too such an extent that mean reversion will begin to weigh heavily on the Markets.  The pin action may hold up through year end with the help of Santa Claus; but barring an extraordinary positive exogenous event, I find a challenge of long term uptrends increasingly unlikely and that it far more probable we should be concerned with the potential downside.

I am not suggesting that investors run for the hills.  I am suggesting that they use the Market strength to take some profits in winners and/or eliminating investments that have been a disappointment.

            Altered risk (medium):

       Investing for Survival
   
            To be great, you must first be good:
           
    News on Stocks in Our Portfolios
 
Economics

   This Week’s Data

            Month to date retail chain store sales were up less than the prior week.

            The December housing market index came in at 61 versus expectations of 63.

                Weekly mortgage applications fell 1.1% while purchase applications were down 3.0%.

            November housing starts rose 10.4% versus estimates of an increase of 7.6%; building permits were up 11.0% versus forecasts of unchanged.

   Other

Politics

  Domestic

What you need to know about the upcoming Omnibus Bill (short):

Congress lifts four decade oil export ban (medium):

  International

            Implications of the French elections (medium):

            The war in the Middle East widens (medium):




Tuesday, December 15, 2015

The Morning Call--Will the Fed really hike rates?

The Morning Call

12/15/15

The Market
         
    Technical

The indices (DJIA 17368, S&P 2021) rallied off a very oversold condition yesterday.  The Dow ended [a] bounced off its 100 moving average, which represents support, [b] below its 200 day moving average for the fourth day; it will now revert to resistance, [c] within a short term trading range {16919-18148}, [c] in an intermediate term trading range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and still within a series of lower highs.

The S&P finished [a] below its 100 moving average, which represents support; if it remains there through the close today, it will revert to resistance, [b] below its 200 day moving average for the fourth day in a row; it will now revert to resistance, [c] back above the lower boundary of its a short term trading range {2016-2104}, negating Friday’s break, [d] in an intermediate term uptrend {1980-2773}, [e] a long term uptrend {800-2161}, [f] still within a series of lower highs. 

Volume rose; breadth improved.  The VIX (22.7) was up 7%, ending [a] above its 100 day moving average, now support, [b] within short term, intermediate term and long term trading ranges. 

The long Treasury fell, closing above its 100 day moving, now support and within very short term, short term and intermediate term trading ranges.

Oil stabilized, at least for a day, ending within short term, intermediate and long term downtrends. 

GLD was declined 1.2%, finishing [a] below its 100 day moving average, now resistance and [b] within short, intermediate and long term downtrends. 

Bottom line: the Averages bounced somewhat weakly off an oversold condition.  However, they continue to challenge support levels.  Given this tepid pin action, it is not at all clear to me where follow through will materialize (in either direction).  Making matters all the more uncertain is the rate decision forthcoming from FOMC meeting today and tomorrow and the huge options expiration on Friday.  On a somewhat brighter note, the Santa Claus rally usually kicks in the last two weeks of December. 

Net, net, I have no feel for the short term direction of the Market.  Longer term, the numerous divergences below the Market surface, the turmoil in the high yield debt market which historically has anticipated problems in the stock market along with our assessment that stocks are very richly valued I believe argues against a successful challenge of the upper boundaries of the indices long term uptrends and for a decline to significantly lower levels.
           
            The ‘free lunch’ trade (short):
           
    Fundamental

       Headlines

            No US datapoints were reported yesterday; although this will, nonetheless, be a busy week for stats capped by the Wednesday FOMC rate decision.  Overseas, the Bank of Japan manufacturing survey remained in plus territory; however, the Chinese yuan continued to get hammered.

            ***overnight, November UK inflation rose 0.1%, the central bank of Sweden kept its key lending rate unchanged at -0.35% and China allowed the further depreciation in the yuan.

            Yesterday’s paucity of economic data notwithstanding, the trend, as I keep documenting, has not been good.  In other words, the economic evidence supporting the Fed rate decision, arguably the most important event this week, overwhelmingly points to no increase in rates.  However, no one at the Fed seems to want to be confused by the facts.  Making matters all the more difficult to analyze is that (1) a 25 basis point rise is not apt to have any impact on the economy [which argues for the Fed to raise rates irrespective of the economic dataflow] and (2) the Fed’s economic centered narrative notwithstanding, everyone knows that it is in fact focused on the Markets---and with the stock market taking some body blows and the high yield market in disarray, there is some reason to believe that the Fed could chicken out of its most well publicized rate hike in history.

                One way in which the problems in the credit market impact stocks (medium):

Bottom line:  If your head isn’t spinning in the midst of all these cross currents, you are a better man (woman) than I.  However, forgetting the byzantine logic of the Fed, the facts on the ground are that the economy is stumbling at best, the stock market internals lack any consistency and the high yield debt market is in a shambles, which as I noted above, has historically preceded a similar performance in equities.

I am not suggesting that investors run for the hills.  I am suggesting that they use the Market strength to take some profits in winners and/or eliminating investments that have been a disappointment.

            Update on the Buffett Valuation Indicator (medium):

    
Economics

   This Week’s Data

            November CPI was reported at 0.0%, in line; ex food and energy, it was +0.2%, also in line.

            The December New York Fed manufacturing index came in at -4.59 versus forecasts of -7.0.

   Other

Politics

  Domestic

  International War Against Radical Islam







Monday, December 14, 2015

The Morning Call--Has the top finally been made?

The Morning Call

12/14/15

The Market
         
    Technical

       Monday Morning Chartology
           
            The S&P is challenging multiple support levels: (1) it is below its 200 day moving average for the third day; if it closes below this MA today, it will revert from support to resistance, (2) it is below its 100 day moving average; if it trades there through the close on Tuesday, it will revert from support to resistance, (3) below the lower boundary of its short term trading range; if it trades there through the close on Tuesday, it will re-set to downtrend. 

It is now taking dead aim at the lower boundary of its intermediate term uptrend (1980)---which is the first but by far the most significant support level.  If the S&P breaks that level, I think that this will be the sign that the top has been made.  Speaking of which notice how the Market seems to be rolling over, as the S&P is now in a series of lower highs.  That whole ‘topping’ formation which dates back to last December has a base at 1970---the second support level that I can see.  The next support level is the August low (1867).  

Stock performance in December options expiration week (short):


I am not suggesting that any of the above challenges will be successful; but I am saying that if they are, then the Averages likely have a long way to go on the downside.



            Clearly a good week for bonds.  I believe that it represents the rising probability of a recession and the demand for a safe haven trade.



            Does this remind of another chart that we have been following (see below)?



            Only slightly worse than oil.



            The VIX has now risen to the point where its short term downtrend has re-set to a trading range and its 100 day moving average has reverted to support from resistance.  Also notice that the 100 day moving average is trending up.  None of this is a plus for stocks.



    Fundamental

            Last week was a tough week for economic data: above estimates: weekly mortgage and purchase applications and November PPI; below estimates: October consumer credit, November small business optimism, month to date retail chains store sales, weekly jobless claims, October wholesale and business inventories and sales, November consumer sentiment, November US export and import prices; in line with estimates: November retail sales and sales ex autos.  That makes twelve down weeks in the last fifteen.  The only bright spot is that November retail sales, the only primary indicator of the week, was neutral. 

            Overseas, it wasn’t much better: negatives: November Chinese exports and imports, third quarter EU GDP, October UK manufacturing, German inflation and the Bank of France lowered its fourth quarter GDP estimate for France; positives: third quarter Japanese GDP.

            Finally, a third high yield fund bites the dust (medium):

            Goldman tries to explain the problem (medium):

            So does Credit Suisse (short):

            The big question this week is, what does the Fed do?  Most investors have been assuming a rate hike; but most have been drinking the same ‘the economy is just great’ Kool aid as the Fed.  Crashing oil prices, chaos in the high yield bond market and plunging stock prices may be prompting a rethinking of that scenario---because, we know the Fed has been targeting the Markets and not the economy.  Will the Fed to waiver?  I am not sure that the Fed hasn’t reached the point that it has no good options, only bad ones. So it may not matter.  The other question is, do the Markets know?

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