The Morning Call
10/26/15
The
Market
Technical
Monday Morning Chartology
The
S&P challenged multiple resistance levels last week: (1) its September high
[resistance] which will revert to support today if the S&P closes above it,
(2) the 100 day moving average [resistance] which will revert to support if the
S&P closes above it today, (3) the upper boundary of its short term
downtrend, which will re-set to a trading range, if the S&P closes above it
today and (4) the 200 day moving average [resistance and is the wiggly red line
in the chart] which will revert to support if the S&P closes above it on
Wednesday.
At
this point, it sounds trite to keep repeating that the S&P will likely challenge
its all-time high (2134) and/or the upper boundary of its long term uptrend
(2161). Looking at the chart there is
virtually no resistance between Friday’s close and those levels. However, I will also repeat that I think that
those challenges will be unsuccessful.
The Halloween
indicator (medium):
The long Treasury remains
above its 100 day moving average, within very short term, short term and
intermediate term trading ranges and continues to build a pennant
formation. Just looking at last week’s
pin action, bond investors were not impressed with the ECB/Bank of China’s
latest QE moves.
Gold
was equally unimpressed with the opportunity offered by lower interest rates or
future inflation. That said, its chart
has improved markedly in the last month---it having re-set its 100 day moving
average from resistance to support and its short term trend from a trading
range to an uptrend. I would like to own
some gold in our Portfolios but given the stream of false breakouts over the
last year, I am unwilling to make a commitment until it successfully challenges
its intermediate term downtrend.
You
can clearly see the impact on the dollar of the aforementioned QEInfinity
moves. It is challenging its 100 day
moving average and a very short term downtrend.
As I noted last week, US companies don’t want to see this because of the
negative impact of currency appreciation on their earnings---another excuse for
the Fed not to raise rates.
As
you might expect, the VIX (14.4) reflects the recent run in stock prices,
falling below its 100 day moving average and re-setting its short term trend to
down. Oddly, it was actually up in the face
of Friday’s strong market performance. I
continue to think that it offers value as portfolio insurance in the 12-13
range.
Fundamental
Last
week’s economic was upbeat both here and abroad for the first time in eight
weeks. At home pluses included the
October housing market index, September housing starts, month to date retail
chain store sales, weekly jobless claims, September existing home sales, the
October Kansas City Fed manufacturing index and the October Markit
manufacturing PMI flash index. Negatives
included September building permits, the October Chicago national activity
index and September leading economic indicators. So those numbers were positive by a
substantial margin. The primary indicators,
however, were evenly divided, two up (September housing starts and existing
home sales), two down (September building permits and September leading economic
indicators). Still this was a good
week. Now we just need more of the same
stuff.
Overseas,
the dataflow was also upbeat with the most significant developments being the repeat
of the ‘whatever is needed’ meme from Draghi and the next day follow up from
the Bank of China lowering interest rates and bank reserve requirements.
At the risk of
beating a dead horse, I was a whole lot less impressed with this newest round
of QE than the rest of the Market for one simple reason---except for QEI, QE
hasn’t worked anywhere in any amount, so to do more reminds me of the
definition of insanity, i.e. doing the same thing over and over but expecting a
different result.
Central
bankers’ death wish (medium):
Why
lower rates won’t help China (short):
Bottom line: don’t chase stock prices at these levels. Indeed, use the strength to take some profits
in winners and/or eliminating investments that have been a disappointment.
Bank
of America on playing the rally (medium):
Investing for Survival
The
inevitable periods of underperformance:
News on Stocks in Our Portfolios
Economics
This Week’s Data
Other
Politics
Domestic
International
Update
on Portugal (medium):
Update on the refugee crisis in
Europe (medium):
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