The Morning Call
8/20/15
The
Market
Technical
The indices
(DJIA 17348, S&P 2079) had a rough day yesterday. The Dow remained [a]
below its 100 and 200 day moving averages, both of which represent resistance,
[b] in a short term trading range {17385-18295}, [c] in an intermediate term
trading range {15842-18295} and [d] in a long term uptrend {5369-19175}.
The S&P
finished [a] back below its 100 day moving average, leaving it as resistance,
[b] slightly above its 200 day moving average which has provide strong support
of late---the S&P has bounced off of it five times since med June, [c] back
below the upper boundary of a very short term downtrend, keeping that trend intact,
[d] within a short term trading range {2043-2135} and [e] within an
intermediate term uptrend {1889-2651} and a long term uptrend {797-2145}. At the Market close, the Aggressive Growth
Portfolio Sold its trading position in VXX.
Volume was up;
breadth was very negative, putting the Market in oversold territory. The VIX was up 11%, [a] pushing back above
100 day moving average; if it remains there through the close on Friday, it
will revert from resistance to support and [b] within a short term trading
range, an intermediate term downtrend and a long term trading range.
Another
divergence (short):
http://www.marketwatch.com/story/stock-market-bulls-are-playing-with-fire-2015-08-18?link=MW_popular
And
another (short):
The long
Treasury bounced, ending [a] above its 100 day moving average, now support, [b]
within short and intermediate term trading ranges and [c] right on the lower
boundary of a very short term uptrend, voiding Tuesday’s break.
GLD was up 1.5%,
still closing below its 100 day moving average and in short, intermediate and
long term downtrends. However, it set a
very short term uptrend. There remains no
great reason to go Buy GLD, but if a serious challenge of this uptrend can be
thwarted, then there might be.
Oil got crushed
again (down 5%) on very high volume. It finished
below its 100 day moving average and within short and intermediate term
downtrends. The dollar fell, closing back below its 100 day moving average,
voiding Tuesday break above it; remains as resistance. It is also within short and intermediate term
trading ranges.
Bottom line:
despite the recent ups and downs of the S&P across several trend lines, the
momentum in both Averages is to the downside on a short term basis. They are in oversold territory, so some
bounce in the near future seems likely. The
question, as always, is follow through and its magnitude.
This is not a
technical environment in which I would be buying stocks. Indeed, any move higher in prices I believe
represents a gift to allow investors to sell.
TLT made a big
recovery, reaffirming the no Fed rate hike and/or a weakening economy scenario. GLD continues to hint a bottom, though we won’t
know until its very short term uptrend successfully holds off a challenge.
Fundamental
Headlines
Yesterday’s
US economic stats were not that great: weekly mortgage applications were up but
the more important purchase applications were down; both the headline and ex
food and energy CPI reports were below expectations---that is not good if you
are the Fed (you have been trying to push it up) or if you are concerned about
deflation.
Overseas,
the news was also not so hot:
(1)
China’s stock market sold off and had to be rescued
again by the government. In addition,
the IMF declined to include the yuan in its SDR basket of currencies. I have noted that this was a major objective
of the Chinese government; and I am sure that its recent action defending its
currency didn’t help---the IMF wants currencies not strictly controlled by
their governments. The question is, what
will be the Chinese government’s reaction.
China’s unemployment rate (short):
Top Chinese analyst not that
positive (medium):
IMF declines to include the yuan
in SDR basket (medium and a must read):
(2)
estimates were published that the emerging markets had
experienced $1 trillion in capital outflows in the last 13 months. That negatively impacts currency valuations
[as their currencies are sold to buy another] and economies [removes potential investment
capital]---in short, increasing recessionary and deflationary forces within
their economies.
(3)
the German parliament approved the Greek bailout---the
bright spot.
***overnight,
the Chinese stock market was down 3% with no intervention [see (1) above];
Kazakhstan allowed its currency to float freely and it plunged 23% [see (2)
above]
Of
course, the big news item of the day was the release of the minutes from the
latest FOMC meeting; and it was another peach---the bottom line of which was
that ‘conditions are not ready for a rate increase’ but ‘they are fast
approaching’. In other words, we are
still scared sh**less to do anything but we are praying for a miracle. Honorably mentioned was less concern about
Greece, more worry that inflation isn’t picking up like it is supposed to, the
belief that energy prices and the (rising) dollar are ‘temporary’ concerns, and
much, much more. I suggest reading the
full text 20 minutes before bedtime.
Fed
mouth piece, Hilsenrath’s take (medium):
Whatever
the yahoos do, it won’t be painless (medium):
Counterpoint from the economic optimist
(medium):
Bottom line: yesterday’s
FOMC minutes were just another in a long string of ‘on the one hand/on the
other hand’ mealy mouthed narratives that conveyed little about its
intent. And there is a very good reason
for that---it is clueless. Actually, it
is probably worse than that. It knows
that it has (once again) waited too long to attempt a return to normality
(keeping its perfect record of failure intact), it paralyzed with fear that the
global economic weakness will begin to show up in the US numbers and it will be
left with few, if any, policy levers to combat recession/deflation (and me
without my spoon).
The only
question is when the Market dreamweavers will come to realize that. I have no answer for that. But I do have a Valuation Model that has
worked well in the past and that currently points to equities, in general,
being well overvalued. In the meantime,
barring a second coming, I see nothing in the fundamentals that will take stock
prices noticeably higher.
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. They may not be available
later on.
The latest from Doug Kass
(medium):
The
bull/bear conundrum (medium):
Economics
This Week’s Data
Weekly
jobless claims rose 4,000 versus expectations of a 4,000 decline.
Other
Copper
breaks 15 year trend line (short):
Politics
Domestic
Loose ends
accumulate (short):
What price will
make the government happy (short):
International
Ukraine
returns to the headlines; referendum planned for November (medium):
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