The Morning Call
9/4/15
The
Market
Technical
The indices
(DJIA 16374, S&P 1951) struggled higher yesterday, and perhaps gave us a
hint on future direction. The Dow ended
[a] below its 100 and 200 day moving averages, both of which represent
resistance, [b] in a short term downtrend {17019-17938}, [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 {2024-2088}, [d] within an intermediate term uptrend
{1902-2675} [e] within a long term uptrend {797-2145} but [e] below the important
1970 level.
Both of the
Averages intraday traded through the upper boundaries of those developing pennant
formations, but failed and dropped to close right on their upper boundaries. In addition, the S&P challenged the 1970
level and fell back. So it would appear
that the upside momentum of Tuesday’s bounce has already petered out. That doesn’t mean that this brief rally is
over; but stocks need to follow through to upside today or a fourth lower high
will have been set.
Volume declined;
breadth was mixed. The VIX fell, but
still closed [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
VIX and Market bottoms (short):
A
little deeper in the weeds look at volatility (medium):
The long
Treasury rebounded, finishing [a] above its 100 day moving average, now support
and [b] within short and intermediate term trading ranges.
GLD dropped
again, remaining below its 100 day moving average, within short, intermediate
and long term downtrends. In addition,
it ended below the lower boundary of its very short term uptrend for a second day,
voiding that trend. So the notion that
GLD had made a bottom was wrong. We now
must wait for it to retest its July low to know if a bottom has been made.
Oil was up 1.5%,
finishing within a short term trend trading range, but below its 100 day moving
average and within intermediate and long term downtrends.
The dollar also
rose, ending right on its 100 day moving average, now resistance, and within
short and intermediate term trading ranges.
Bottom line: yesterday’s advance was a weak follow through
to Wednesday’s already weak bounce. That
doesn’t necessarily mean that the rally is over; but if stocks aren’t up today,
it will. The relative frailty of yesterday’s
follow through was made all the more so because (1) there was an absence of
more bad news out of China and (2) the narrative from the overnight ECB meeting
was upbeat.
I continue to watch
for the Averages to break either the upper or lower boundaries of the developing
pennant as the best near term indication of direction. In the meantime, as long as volatility continues
at present extremes, it is almost impossible to make any meaningful comment on
the Market’s direction.
The
end of ‘buy the dips’? (medium):
Fundamental
Headlines
We
finally received a positive day of economic data. The plus side included the US July trade
balance, the August Markit services PMI and the August ISM nonmanufacturing
index. The only discordant note came
from weekly jobless claims.
Unfortunately, this will not get us to a positive week of numbers; and
it clearly won’t stop the warning light flashing over another potential
downgrade of our forecast.
Overseas,
the news was also upbeat: the August Markit EU composite PMI was slightly
better than anticipated while the August Markit Japanese services PMI was well
above estimates.
In addition, the ECB met
yesterday and left policy rates unchanged but modified its asset purchase
program to provide more flexibility if the ECB decide to expand the size,
composition and duration of that program.
In addition, Draghi, besides announcing lower estimates for both
inflation and economic growth within the EU, emphasized his willingness,
readiness and ability to do more if needed.
In short, QE is alive and well in Europe.
***overnight,
July German factory orders and August UK retail sales were both quite
disappointing.
Bottom
line: I got to tell you I was a bit
surprised by the Market’s mediocre response to positive domestic and global
economic news, the QE narrative out of the ECB and the radio silence from
China. We all know, of course, that there is no demonstrable
linkage between stock prices and the news.
However, in a highly volatile market which is bouncing off a recent low
on a day when the news was upbeat both here and abroad, I was still surprised
by what was in essence a flat day.
That said, I shouldn’t
be amazed that a good day’s news has little effect on a Market that is
substantially overvalued. Especially
when that day’s news is a respite in a longer term trend in disappointments
from multiple sources.
I remain of the
opinion that near term investors are focusing less on fundamentals and more on
the technicals. The keys to watch are (1) the boundaries of the developing pennant
formation and (2) whether the indices will challenge their intermediate term
trends and whether or not those challenges are successful.
While we are
waiting, do nothing.
Investing for Survival
The
risk in chasing yield (medium):
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
August Markit services PMI was reported at 56.1 versus expectations of 55.2.
The
ISM services index came in at 59.0 versus estimates of 58.5.
August retail chain store
sales were encouraging.
August nonfarm payrolls
rose 173,000 versus forecasts of 223,000.
Other
Politics
Domestic
International War Against Radical
Islam
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