The Morning Call
10/20/15
The
Market
Technical
The indices
(DJIA 17230, S&P 2033) inched higher yesterday, remaining above their
September highs for a second day. The
Dow ended [a] below its 100 and 200 day moving averages, both of which
represent resistance; it is nearing the 100 day MA, [b] in a short term
downtrend {17068-17792}, [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; it too is closing in on its
100 day MA, [b] below the upper boundary of a very short term downtrend, [c] in
a short term downtrend, but nearing its upper boundary {1983-2044}, [d] in an
intermediate term uptrend {1936-2729} [e] a long term uptrend {797-2145}.
Market
performance in the eighth year of a presidential term (short):
Volume fell; breadth
was mixed. The VIX (15.0) continued dropping,
finishing [a] back below its 100 day
moving average, now resistance, [b] within a short term downtrend and [c] in
intermediate term and long term trading ranges.
Update on margin debt
(short):
The long
Treasury was off slightly, ending above its 100 day moving average, still
support, within very short term, short term and intermediate term trading
ranges and continues to develop a pennant formation.
GLD declined,
but still closed [a] above its 100 day moving average, now support [b] in a
short term uptrend [c] in intermediate and long term downtrends. Despite its move above its 100 day moving
average and re-setting its short term trend to up, its struggle with the upper boundary
of its intermediate term downtrend keeps me from calling a bottom.
Bottom line:
stocks remain modestly overbought, though they have been that way for two weeks
without much reaction. In my opinion, the
longer the Averages remain above their September highs, the better the odds of
challenging their all-time highs.
However, I don’t see that challenge being successful. That leaves both indices roughly in the
middle of a range marked by their all-time highs on the upside and the lower
boundaries of their intermediate term trends on the downside. However, when the lower boundary is
represented by Fair Value the risk/reward changes dramatically to the negative.
Fundamental
Headlines
One
US datapoint yesterday: the October housing market index came in better than projected. It also likely anticipates better housing
starts and new and existing home sales. On
the other hand, we got poor earnings reports/guidance from major companies---Morgan
Stanley and IBM.
Overseas, the
numbers were mixed as third quarter Chinese GDP growth came in slightly above
estimates while factory output and fixed asset investments were below
expectations.
But
are those numbers real? (medium):
Bottom line: this
week will be a slow one for US economic data, but a heavy one for earnings
reports; plus OPEC is meeting, as is the ECB and the dialogue regarding the
debt ceiling (due to be hit in early November) is heating up.
In addition, the
better the global securities markets perform, the more likely that talk resumes
of a December rate hike. Remember, the
Fed’s policy decision focus is on the Markets not the economy which creates a
Catch 22 dilemma. If the indices move
towards their all-time highs, the Fed will feel more comfortable raising rates---which
than causes equities to sell off---which then causes the Fed to sound
dovish---which…….you get the picture.
This is the corner the Fed has painted itself into.
The point being
that there are lots of potential market moving events this week not related to
the US or global economies.
A
bigger brick in the wall of worry (medium):
Economics
This Week’s Data
The
October housing market index came in at 64.0 versus expectations of 62.0.
September
housing starts jumped 6.5% versus estimates of up 1.8%; however, building
permits fell 5.0% versus forecasts of being unchanged.
Other
Politics
Domestic
International War Against Radical
Islam
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