The Morning Call
9/23/15
The
Market
Technical
The indices
(DJIA 16330, S&P 1942) continued their schizophrenic behavior, trading down
yesterday. The Dow ended [a] below its
100 and 200 day moving averages, both of which represent resistance, [b] in a
short term downtrend {16974-17893}, [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 and 200 day moving averages, both of which represent
resistance, [b] below the upper boundary of a very short term downtrend, [c] in
a short term downtrend {2008-2072}, [d] within an intermediate term uptrend
{1916-2690} and [e] a long term uptrend {797-2145}. In addition, it followed through to the
downside after its unsuccessful challenge of the 1970 level.
Volume rose;
breadth was negative. The VIX (22.4) jumped 11%, ending [a] above its 100 day
moving average, now support, [b] back above the lower boundary of its a short
term uptrend, voiding Monday’s break, [c] within an intermediate term trading
range {it remains well above the upper boundary of its former intermediate term
downtrend} and [d] a long term trading range.
Finally, it lifted off the top of the zone (below 20) indicative of more
stable stock prices.
The long
Treasury bounced 1.5%, closing above its 100 day moving average, still support;
and it finished within short and intermediate term trading ranges.
GLD declined,
closing in downtrends across all timeframes and below its 100 day moving
average. It can still build a bottom
were it to fail to successfully challenge its July/August lows (104). But that is yet to be seen.
Oil was down,
staying below its 100 day moving average and within a short term trading range
and intermediate and long term downtrends.
The dollar was
up again. It finished right on its 100
day moving average, which is now resistance, and within short and intermediate
term trading ranges.
Bottom line: yesterday
stocks executed the negative follow through from breaking the lower boundaries
of those very short term uptrends. Still
despite the continuing volatility (which picked back up yesterday), the indices
remain in a trading range bounded by the December 2014 lows (17029/1970) on the
upside and the lower boundaries of the indices intermediate term trends (15842/1916)
on the downside---which is still a fairly tight range; just not as tight as the
one marked on the downside by those very short term uptrends. The immediate issue is the strength of
support of the lower boundaries of those intermediate term trends.
Thoughts
from a technician (medium):
Fundamental
Headlines
Yesterday’s
economic news was again disappointing: month to date retail chain store sales and
the September Richmond Fed manufacturing index were both awful.
And
just to keep investors in an upbeat mood, a regional Fed chief said basically that
zero bound interest rates is a failed policy (medium):
Around
the globe, commodity prices were hammered on fears of a weakening Chinese
economy, the Brazilian real sank even lower and VW admitted to emission fraud
for up to 11 million cars---likely leading to multi-billions in fines, etc.
which probably won’t help the German economy (one out of six German workers are
dependent on the auto industry).
China’s
rising level of debt (medium):
China
continues its campaign to intimidate the media regarding the economy (medium):
***overnight,
the September Markit EU manufacturing PMI came in lower than expected; the
September Caixin Chinese manufacturing PMI had similar results.
Expectations
for global growth continue to decline (medium):
Bottom
line: the US economic dataflow added one
more day to the negative trend. Ditto
the international news. As you know, I believe
that these fundamentals argue for a slowing/shrinking economy/corporate
profits. That is a problem when stocks
are near their highs based on multiple measures, though it is not a fatal one. What makes it fatal is when investor cease to
have sugar plum fairies dancing in their heads---and that seems to be starting
to happen as the doubts increase that the Fed can manage a soft landing. And it is only going to accelerate when these
guys check their history books and learn something that we have known along, to
wit, the Fed has never, ever in all its history executed a successful
transition from easy to tight money. And
to make matters worse, any transition from here will be taking place at a time
that the Fed’s balance sheet is exponentially larger than any other period in
its history.
That said, I continue
to believe that right now, short term the technicals are more important to
watch than the fundamentals.
More
on corporate profit and revenue growth.
The operative phrase in this presentation is ‘unless the US economy has
fallen into a recession’ (short):
Spending
on corporate stock buybacks now exceed free cash flow (medium and a must read):
Economics
This Week’s Data
Month
to date retail chain store sales growth fell dramatically from the prior week.
The
September Richmond Fed manufacturing index came in at -5 versus estimates of
+3.
Weekly mortgage applications
rose 13.9% while purchase applications were up 9.0%.
Other
A
good review of last week’s FOMC meeting and decision (medium):
Misguided
interest rate obsession (short):
ECB
‘sounds’ like it won’t take further easing steps (medium):
Update
on student debt (short):
Politics
Domestic
A problem with
being politically correct (short):
An essay
critical of Carly Fiorina (medium):
International
US
to put new nukes in Germany---Yeah, that’s going to work (medium):
My favorite eurocrat,
Nigel Farage, warns of the immigration disaster (8 minute video):
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