The Morning Call
8/25/15
The
Market
Technical
The indices
(DJIA 15871, S&P 1893) plunged again, only worse. The Dow ended [a] below its 100 and 200 day
moving averages, both of which represent resistance, [b] in a short term downtrend
{17083-17970}, [c] in an intermediate term trading range {15842-18295} and [d]
in a long term uptrend {5369-19175}.
The S&P
finished [a] below its 100 day moving average, leaving it as resistance, [b] below
its 200 day moving average; if it remains below that MA through the close today,
it will revert from support to resistance, [c] below the upper boundary of a
very short term downtrend, [d] below the lower boundary of its short term
trading range, re-setting to a downtrend {2035-2098}, [e] below the lower boundary
of its intermediate term uptrend {1894-2657}; if it remains there through the
close Thursday, it will re-set to a downtrend, and [f] a long term uptrend
{797-2145}.
Stock
performance after two 3% down days in a row (short):
Volume was
higher than the option expiration influenced level last Friday; breadth was awful. The VIX soared another 45%, finishing [a]
above its 100 day moving average; if it remains there through the close today,
it will revert to support, [b] above the upper boundary of its short term
trading range; if it remains there through the close today, the short term
trend will re-set to up, [c] above the upper boundary of its intermediate term
downtrend; if it remains there through the close on Wednesday, it will re-set
to a trading range and [d] a long term trading range.
The long
Treasury slipped yesterday, ending [a] above its 100 day moving average, now
support, [b] within short and intermediate term trading ranges and [c] above the
lower boundary of a very short term uptrend.
GLD fell, remaining
below its 100 day moving average and in short, intermediate and long term downtrends. However, it is in a very short term
uptrend. This could be signaling that a
bottom has been made; however, that very short term uptrend needs to be
challenged, at least once, before I would have any confidence in that judgment.
Oil continues to
crash (down 6.5%), finishing below its 100 day moving average and within short
and intermediate term downtrends.
The dollar declined,
closing below its 100 day moving average, now resistance, and within short and
intermediate term trading ranges.
Bottom line: the
wind blew and the s**t flew and I couldn’t see for a minute or two. Despite a huge down move, only one new trend
was being challenged at the Market close---the lower boundary of the S&P’s
intermediate term uptrend (the S&P short term trend did re-set from a trading
range to down). And that challenge was
just barely. I said in yesterday’s
Morning Call that the levels represented by the lower boundary of the Dow’s
intermediate term trading range and the lower boundary of the S&P
intermediate term uptrend looked like a reasonable point to bounce; if only
because stocks are so oversold.
That said, the
Averages’ intermediate term trends are in danger of being re-set to down; and
if that occurs, then it is pretty safe to say that this Market has topped and
is heading lower. Unless you are a
trader, I would not be buying until and/or if the indices settle down.
Bonds continue
to suggest no Fed rate hike and/or a weakening economy---though being off
yesterday was a bit puzzling given the equity markets pin action. Nevertheless, stocks and oil/commodities are
also signaling that scenario.
Fundamental
Headlines
One
US economic datapoint was released yesterday: the July Chicago Fed national
activity index was ahead of expectations; though, the June reading was revised down
big.
Of
course, this stat was hardly noticed as international markets were crashing
ahead of our own open, then our Markets took us for a ride on the Wild Mouse. Many investors were disappointed that the
Chinese central bank did nothing to intervene in either its stock or currency
markets. My opinion is that there was
more to it than that: principally, the rapidly dissipating confidence in
central bankers’ ability to influence market and or economies. If so, then there is a ways to go on the
downside if this leads to the mean reversion of prices to value.
Fed policy is
bankrupt (short):
Will
it have to step in again and rescue the markets? (medium):
QEIV?
(medium):
***overnight,
Chinese markets were down another 7%; however, (1) there were two upbeat
economic reports [a] August electric power generation was up 4%---though many
experts doubt the veracity of that number and [b] August leading economic
indicators were up---but were led by increased bank{read margin} loans and (2)
its central cut key interest rates.
In
other developments, the Japanese stock market was off 4%; August German
business confidence was ahead of expectations.
Bottom line: the
risks that I list each week in the Closing Bell seem to be coming manifest (1)
recession/deflation driven by a slowing global economy and (2) loss of faith in
central bank failed policies. The
technicals will likely tell us if thesis is correct or not long before we know
the actual level of malaise in China and the emerging markets or a revolt against
central bank incompetence surfaces.
Whether or not
these happen in the short term doesn’t change the other part of my thesis which
is that there is a disconnect between valuations and fundamentals; and sooner
or later, that spread will mean revert.
I would
discontinue any effort to sell stocks that have been a disappointment or no
longer fits your investment criteria and to trim the holding of any stock that
has doubled or more in price. But I would
also not be buying.
Coping
with a correction. This is a junior form
of a Buy Value Range (short):
The
risk of normalization (medium):
10
reasons why the Market is going lower (medium):
Economics
This Week’s Data
Other
Politics
Domestic
International War Against Radical
Islam
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