The Morning Call
9/11/15
The
Market
Technical
The indices
(DJIA 16330, S&P 1952) had a relatively calm (up) day. The Dow ended [a] below its 100 and 200 day
moving averages, both of which represent resistance, [b] in a short term
downtrend {16997-17916}, [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 {2018-2086}, [d] within an intermediate term uptrend
{1906-2679} and [e] a long term uptrend {797-2145}. In addition, it closed between the lower boundary
of a very short term uptrend and 1970, a gap of about 23 points---so one of
these boundaries are apt to break in the near term. I want stocks to get out of this range and then
see if there is any technical clarity.
Volume was up slightly;
breadth recovered. The VIX fell 7%, but still ended [a] above its 100 day
moving average, now support, [b] within a short term uptrend, [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.
The long
Treasury fell but remained above its 100 day moving average, leaving it as
support and finished within short and intermediate term trading ranges.
GLD rose, 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 increased 2.5%,
but stayed below its 100 day moving average and within a short term trading
range and intermediate and long term downtrends.
The dollar fell,
closing below its 100 day moving average, which is now resistance, and within
short and intermediate term trading ranges.
Bottom line: the
Averages took a break from their volatility shtick yesterday, closing (1) on a
long term basis, within a very wide gap between the lower boundaries of their
intermediate term trends and the upper boundaries of the short term downtrends
and (2) on a short term basis, in a much narrow zone marked by S&P 1970 on
the upside and the trend of higher lows on the downside.
I continue to
think that trying to decipher short term direction in this technical morass is
an exercise in futility. That said, as long as the lower boundaries of the
indices intermediate term trends hold, the Market is in a simple correction in
a bull market.
The long
Treasury’s pin action continues to suggest a Fed rate hike and a stronger
economy. As you know, I don’t think that
this scenario will occur.
Technical
analysis for the bulls (medium):
Stock
performance in the fourth quarter of a pre-election year (short):
http://jeffhirsch.tumblr.com/post/128800394353/a-fourth-quarter-market-turn-around
http://jeffhirsch.tumblr.com/post/128800394353/a-fourth-quarter-market-turn-around
Fundamental
Headlines
Yesterday
was not a good day in data land: weekly jobless claims fell less than expected,
August import and export prices declined more than forecast and July wholesale
inventories and sales were disappointing.
This new batch
of statistics pretty much guarantee that this week will be the third in a row
for discouraging US stats. We still
need a much longer string of lousy numbers before our forecast gets revised
down (again); but this trend is now something that we need to start taking a
bit more seriously.
Of
course, we can’t go more than a couple of days without more confusion out of
the Fed. Yesterday’s contribution was an
article by Fed whisperer Hilsenrath backing off of his position that the Fed
was going to raise rates next week. As
you know, I don’t really give a rat’s ass whether the Fed Funds rate goes by 25
basis points or not because (1) after five years at zero bound and $3 trillion
in QE that move would have an almost infinitesimally small impact on the economy,
if that and (2) while some investors are worried about the effect of a rate
raise on the Markets [which I would agree with], it looks to me like those
Markets are already taking the matter of unwinding QE into their own hands.
Overseas, the
news was not much better: August Chinese
CPI rose 2% but PPI fell 5.9%; S&P downgraded Brazil’s credit rating to junk;
French manufacturing and industrial production were negative; and July Japanese
machinery orders were down 3.5%, prompting a government official to predict
more QE.
This is today’s
absolute must read presentation which examines Japanese QE’s, their success (or
lack thereof) and some implications for the US
***overnight,
July Italian industrial output was up 1.1%; German and Spanish CPI fell as well
as German PPI; and last but not least, Iran appears to be joining Russia with
fresh ground troops in Syria.
Bottom
line: the fundamentals are in a three
week funk, which clearly provides little reason to assume an improving economic
scenario either here or abroad. The Fed
continues to masturbate over an irrelevant 25 basis point rise in the Fed Funds
rate while an increasing number of investors are already anticipating an unwind
in QE. The only difference will likely be
a little less delicate process than if managed by the boys in the Fed.
So I have no fundamental
reason to challenge my thesis that stocks are overvalued. My sense of just how
overvalued they might get was clearly a mistake; but it doesn’t change their degree
of overvaluation.
That said, I continue
to believe that the technicals have the upper hand in determining Market
direction over the short term.
This is a time
to do nothing.
Economics
This Week’s Data
July
wholesale inventories fell 0.1% versus expectations of +0.3%; wholesale sales
declined 0.3%.
August
PPI came in flat versus estimates of a 0.2% decline; ex food and energy, it was
up 0.3% versus forecasts of up 0.1%.
Other
Politics
Domestic
Jeb Bush’s tax
plan (short):
Another
government shutdown (medium):
International War Against Radical
Islam
Kerry’s
letter to congress on the Iran deal (medium):
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