The Morning Call
9/10/15
The
Market
Technical
The see saw pin
action continued with indices (DJIA 16253, S&P 1942) closing down after a
big early morning advance. 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 {2020-2084}, [d] within an intermediate term uptrend
{1906-2679} and [e] a long term uptrend {797-2145}.
My observations
are (1) the Averages voided the pennant pattern to the upside; that means that
the upper boundary goes away. However, the
lower boundary remains intact and now includes three higher lows; and supports
the historical notion that a break out of a pennant pattern to the upside is
followed by more upside, (2) however, the S&P rallied through 1970 then
fell back, making it the third unsuccessful attempt to challenge this
resistance level and (3) the intraday reversal came in the face of generally
upbeat economic news both here and abroad.
While on
balance, this analysis carries a negative overtone: (1) I repeat my recent
caution that the current extreme volatility makes any directional forecast suspect
and (2) stocks are in a very short term zone marked on the upside by S&P
1970 and on the downside by the rising trend of higher lows. Let’s get out of this range and see if there
is any technical clarity.
Volume was down slightly;
breadth negative. The VIX rose 5%, ending [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.
Update
on sentiment (medium):
The long
Treasury bounced off its 100 day moving average intraday, leaving it as support
and remained within short and intermediate term trading ranges.
GLD (106) fell
1.25%, 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
3.5%, keeping it below its 100 day moving average and within a short term
trading range and intermediate and long term downtrends.
The dollar was
unchanged, closing below its 100 day moving average, which is now resistance,
and within short and intermediate term trading ranges.
Bottom line: the
Averages continue the dramatically churn in something of a no man’s land
between the lower boundaries of their intermediate term trends and the upper
boundaries of the short term downtrends.
Unfortunately the width of that zone is considerable; so stocks can continue
their current volatile trading and not threaten either set of trends. On a very short term basis, they are in a
zone with two well defined boundaries: S&P 1970 on the upside and the trend
of higher lows on the downside. 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.
A
sucker’s rally? (medium):
Fundamental
Headlines
Yesterday’s
US economic data were mixed: weekly mortgage and purchase applications fell,
month to date retail chain store sales growth held constant with the prior week
and the July Labor Department job openings report was very upbeat. That said the job openings report was by far
the most important and, therefore, gave a positive overall tone to the day.
Overseas,
both Japan and China announced their intent to reduce taxes. Part of these actions were simply extensions
of pledges already made. However, the
simple fact that governments are anticipating using tax policy to combat the
current malaise I believe is a plus.
That was the good news. The bad
news was UK trade, production and manufacturing stats were dismal.
Citi
sees 55% chance of a global recession beginning in China (medium):
More
Chinese government intervention in their securities markets (medium):
***overnight,
August Chinese CPI rose 2% but PPI fell 5.9%; S&P downgraded Brazil’s
credit rating to junk; July Japanese machinery orders were down 3.5%, prompting
a government official to predict more QE.
Bottom
line: as evidence that technical factors
seem to be foremost in investor’s minds, I present the last two days of
trading: (1) Tuesday, the news was mixed to negative and stocks smoked, (2)
Wednesday, the dataflow was mixed to positive and stocks opened strong and
ended down 1.5%.
Looking at the
fundamentals, there is nothing to suggest that our current (lower revised)
economic outlook is not right on. In fact,
I am worried that I might have to do it again, perhaps even including a
recession in that outlook. I must admit that
the potential for tax relief in China and Japan is encouraging; but both have
been making those noises for some time and, to date, there is little to show
for it. And unfortunately, even if they
do, we have to include the possibility that it may be too little too late. Finally, it is becoming increasingly likely
that the central banking community may have lost control of the one thing their
policies have successfully impacted---asset prices.
So I have no fundamental
reason to challenge my thesis that stocks are overvalued. My sense of just how
overvalued they might get was not great; but it doesn’t change their degree of
overvaluation. If stocks break through
their intermediate term trends to the downside that will likely be remedied.
This is a time
to do nothing.
Economics
This Week’s Data
Month
to date retail chain store sales grew at the same pace as last week.
The
July Department of Labor job openings report showed a 3.9% increase.
Weekly
jobless claims dropped 6,000 versus expectations of a 7,000 decline.
August
import prices were down 1.8% versus estimates of sown 1.6%; export prices were
off 1.4% versus forecasts of -0.4%.
Other
The
current corporate revenue recession (medium):
Three
minutes with David Stockman on the Fed:
Politics
Domestic
The key role of
conservatives in taxing carbon (medium):
International War Against Radical
Islam
The
latest from Khamenei (short):
Everyone is stepping up their military
presence in Syria (medium):
Russia
steps up presence in Syria (medium):
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