The Morning Call
8/11/15
The
Market
Technical
Yesterday, the
indices (DJIA 17615, S&P 2104) staged a fairly impressive rally from an oversold
position. The Dow ended [a] below its 100
and 200 day moving averages, both of which represent resistance, [b] back above
the lower boundary of its recently re-set short term trading range
{17385-18295}, voiding Friday’s break, [c] in an intermediate term trading
range {15842-18295} and [d] in a long term uptrend {5369-19241}.
The S&P finished
above [a] its 100 day moving average, voiding Friday’s break and [b] the lower boundary
of its short term uptrend, voiding Friday’s break. It remains in uptrends across all timeframes
(2100-3029, 1884-2648, 797-2145).
Not
quite as optimistic (medium):
Volume rose
fractionally; breadth was improved, though the flow of funds indicator remains
negative. The VIX (12.22) was down 9%---closing
below its 100 day moving average and remaining within a short term trading
range, an intermediate term downtrend and a long term trading range. I continue to believe that the VIX under 12
represents value as portfolio insurance.
More on the VIX
(medium):
More
on momentum (medium):
More on sentiment
(short):
The long
Treasury fell, but still ended for the third day above [a] its 100 day moving
average, re-setting it from resistance to support [b] the upper boundary of its
short term downtrend, re-setting the short term trend to a trading range and
[c] the lower boundary of a very short term uptrend.
GLD was up for
the fourth day in a row, but remained below its 100 day moving average and in
downtrends across all timeframes.
Oil was up 2%, but
still finished below its 100 day moving average and within short and
intermediate term downtrends. The dollar also declined, remaining above its 100
day moving average and within short and intermediate term trading ranges.
Bottom line: yesterday’s
relieved some pressure on the technicals; but not a lot. The Dow voided Friday’s break to the lower boundary
of its recently re-set trading range; but all the other recently re-set trends
remain intact. On the other hand, the
S&P bounced back above its 100 day moving average and the lower boundary of
its short term trading range, leaving all trends up. While the pin action was unquestionably a
positive, the fact that the Averages are out of sync remains a big
problem. Remain patient but pay close
attention because I still believe that the big Market news near term will
likely be told by the technicals.
The momentum in the
battle in the bond market remains in the hands of the no hike/economic weakness
crowd as several trends are changing direction.
This seems inconsistent with the recent driving narrative in the stock
market (improving economy/a Fed rate hike) unless the thesis is now that the
poor Chinese and Japanese economic data assures mega central bank liquidity
injections, so a slight move by the Fed towards normalization doesn’t matter. I am not really comfortable with that
storyline; at least, not at the moment.
So I am still looking at the stock and bond markets being part of the
current multiple divergence mishmash.
The latest from John
Hussman (medium):
A
graphic summary of yesterday’s action in all markets (medium):
This
bull market’s duration (short):
Fundamental
Headlines
There
was no US economic data yesterday, though there was a great piece of anecdotal
news---Buffett made another of his big acquisitions. Buffett inspired events generally have a
commensurate impact on the Market.
There
also was one bit of upbeat international news, i.e. Greece and Troika appear
near to an agreement on financial reforms that will grant Greece a E86 billion
bailout. If this proves out, then
certainly the risk of a Grexit or some financial crisis spawned by a default
remains low.
***
overnight, it looks like the deal has been cut.
There
were, however, a boatload of negative international stats: Chinese inflation, exports and imports were
well below expectations (clearly supporting the notion that these guys have
some serious problems) and Japanese consumer sentiment was the lowest in six
months (more validation that the Japanese workingman is getting screwed by
Abenomics).
But
instead of viewing these numbers as bad news, it appears to have rekindled
investor hopes that the Banks of China and Japan will keep global QEInfinity on
the fast track. Whether this was just an
excuse for a short covering rally off an oversold condition or an indication that
investors remain enthralled with the viability of QE, is tough to tell after
one day’s pin action. However, if in
the next couple of trading days, it appears to be the latter, then stocks could
very well be heading back to challenge their all-time highs.
***overnight, providing further proof that (1) its economy
is up s**t creek and (2) QE is a joke and doesn’t work, the Chinese government devalued
the yuan in lieu of its fruitless efforts to do the same by massive liquidity
injections.
Bottom line: yesterday
witnessed a counterpoint to the issues that I raised last Friday:
(1)
that investors were getting nervous that the QE endgame
was at hand. Those poor Chinese stats
don’t necessarily mean that the Bank of China will pump up the volume of its
version of QE. But given the government’s
response to falling stock prices, it seems reasonably assured. That said, QE having proved itself near
worthless economically in experiments by virtually every other major central
bank in the world, there seems little reason to assume that it will be any
different in China, assuming QE on steroids is implemented. On the other hand, QEInfinity has proven a
boon to stocks were it has been employed; and yesterday’s pin action in China
and the US suggests that it still does.
(2)
the flow of negative anecdotal data is impacting
individual components of the Averages.
As I noted above, there was a quite positive anecdotal news item
yesterday in the form of the Buffett bid for Precision Castparts. Whether that was a one off item or the start of
an improving trend in anecdotal datapoints is to be determined.
***overnight, consumer spending expectations and freight car loadings collapsed.
I continue to believe
that the key investment strategy today is to take advantage of the current high
prices to sell any stock that has 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.
The
results of this earnings season: 61% of
the S&P companies beat their earnings estimates; 53% beat their sales
expectations.
Economics
This Week’s Data
The
July small business optimism index was reported at 95.4 versus expectations of
95.0.
Second
quarter nonfarm productivity was up 1.3% versus estimates of up 1.6%; unit
labor costs were up 0.5%, in line.
Other
The
NY Fed’s survey of consumer spending expectations collapsed in July (medium):
http://www.zerohedge.com/news/2015-08-10/wasnt-supposed-happen-household-spending-expectations-crash
US
freight carloads fell in July (short):
Politics
Domestic
International War Against Radical
Islam
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