The Morning Call
9/16/15
The
Market
Technical
So much for the
calm ahead of the Fed meeting. The indices
(DJIA 16599, S&P 1978) ripped higher yesterday; but with only a minor
change in the overall technical picture.
The Dow ended [a] below its 100 and 200 day moving averages, both of
which represent resistance, [b] in a short term downtrend {16981-17900}, [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 {2016-2084}, [d] within an intermediate term uptrend {1911-2684}
and [e] a long term uptrend {797-2145}.
In addition, it negated
Monday’s break below the rising trend of higher lows and then soared through
the 1970 resistance level. If it finishes
there tomorrow, 1970 will revert to support.
Volume was flat;
breadth improved. The VIX (22.5) dropped 7%, ending [a] above its 100 day
moving average, now support, [b] right on the lower boundary of its 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. As long as
remains roughly above the 20 level, uncertainty is at elevated levels.
The long
Treasury fell 2%, closing below above its 100 day moving average (if it remains
there through the close on Thursday, it will revert to resistance) and finished
within short and intermediate term trading ranges.
GLD declined (105.9),
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 up 2%, staying
below its 100 day moving average and within a short term trading range and intermediate
and long term downtrends.
The dollar was
up, but closed below its 100 day moving average, which is now resistance, and
within short and intermediate term trading ranges.
Bottom line: in
a big up day, the S&P closed above the 1970 level which if confirmed would
indicate more movement to the upside. In addition, there was equally dramatic
moves in bonds (down) and oil (up) which seemed a bit contradictory to the
S&P pin action. Either this was (1) just
(unexpected) jittery pre-FOMC meeting noise, (2) a relief rally that the
uncertainty associated with the Fed decision will finally be over, (3) traders are getting ahead of Friday’s
quadruple expiration, (4) investors believe that that the Fed is going to raise
rates because the economy is so strong that any hike won’t slow that progress or
hamper inflationary pressure or (5) investors believe that the Fed won’t raise
rates but the economy is strong enough that it will stimulate inflationary
pressures. In short, confusion reigns
supreme, at least in my mind. For the
moment, I am sticking with the noise alternative. However, (4) does raise the possibility that
investors would be happy with a tightening Fed---which would create a bit of
cognitive dissonance for our outlook.
Sell
the rips (medium):
Fundamental
Headlines
Yesterday’s
US economic data were weighed to the downside: month to date retail chain store
sales improved from the prior week; July business inventories and sales were up
slightly, in line; August retail sales were off but July was revised up making
the combined months a wash; the NY Fed manufacturing index was abysmal; and August
industrial production and capacity utilization were below estimates. The primary indicators August retail sales
and industrial production were sort of mixed.
While we did get some upbeat data, this is not an improvement in the
overall dataflow from the last three weeks nor does it argue for a Fed rate
increase.
Overseas, August
UK inflation was 0%, the Japanese central bank left monetary policy unchanged,
German investor confidence dropped 50% and Chinese stocks took another big hit. In addition, Citi made global recession in
2016 its base case. Nothing here about
which to get jiggy.
***overnight,
S&P lowered Japan’s credit rating and fears rose that a second Chinese
state owned company would file for bankruptcy.
All
that said, investors’ focus remained on the Fed and the upcoming rate decision. I, for one, will be glad just to get this
thing behind us. This has to be the most
anticipated FOMC meeting in history whose likely outcome is irrelevant
economically. It is all in investors’
minds; and you can see from my above comments, I have no idea what they are
thinking. Below is an assortment of
opinion on this meeting from analysts I respect.
Lance
Roberts on the likelihood of a rate increase (medium):
More
from Alhambra Partners (medium):
More
from John Hussman (medium):
More
from Michael Gayed (medium):
Bottom
line: the only fundamental comment I have
about yesterday is that the dataflow hasn’t improved. Since no one seems to care and since the Fed
seems to be renting all the space in investors’ minds, my bottom line remains ‘…..
whatever it (the Fed) does, the outcome is going to be the same---an
undetectable impact on the economy and a further cementing of the idea that the
Fed is lost, confused and is clueless about what it should do because its
QEInfinity policy is so historically unprecedented that it has no idea what
will happen next to the one sector that QE has affected; and that is asset
pricing and allocation.’
Whatever
happened to the advisor who said that cash has no place in a portfolio?
(short):
News on Stocks in Our Portfolios
Economics
This Week’s Data
Month
to date retail chain store sales improved over the prior week.
August
industrial production fell 0.4% versus expectations of -0.2%; capacity
utilization was 77.6 versus estimates of 77.8.
July
business inventories rose 0.1%, in line; sales also increased 0.1%.
Weekly
mortgage applications dropped 7%, while purchase applications were down 4%.
August
CPI fell 0.1% versus forecasts of no change; ex food and energy, it rose 0.1%
versus consensus of up 0.2%.
Other
Update
on big four economic indicators (medium):
Politics
Domestic
International War Against Radical Islam
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