The Morning Call
10/14/15
The
Market
Technical
The indices
(DJIA 17082, S&P 2003) finally took a rest, though there was nothing
notable about the retreat. The Dow ended
[a] below its 100 and 200 day moving averages, both of which represent
resistance, [b] in a short term downtrend {17099-17808}, [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 {1990-2051}, [d] in an intermediate term uptrend {1933-2726}
[e] a long term uptrend {797-2145}.
Volume increased---a
little concerning in that it supports the recent pattern of up volume on down
days and down volume on up days. Breadth
was negative. The VIX (17.7) was up 9% finishing
[a] right on its 100 day moving average one day after it re-set from support to
resistance; I am shifting this indicator to neutral, awaiting follow through, [b]
within a short term downtrend and [c] in intermediate term and long term
trading ranges.
The long
Treasury was up again, ending above its 100 day moving average, still support;
and within very short term, short term and intermediate term trading
ranges.
GLD was up, closing
[a] above its 100 day moving average for the third day, reverting from resistance
to support [b] very near the upper boundary of its a short term trading range,
[c] within intermediate and long term
downtrends and [d] is still developing a very short term uptrend.
Bottom line:
stocks started working off their overbought position; so no need to read
anything more significant in yesterday’s decline than that. Further, in the absence of any meaningful
technical damage, I think an attempt at challenging earlier highs a reasonable
probability. However, I believe that the
fundamentals argue against buying stocks at current levels.
Weakest
sector rally causes split opinion (short):
Fundamental
Headlines
There
were two datapoints reported yesterday: month to date retail chain store sales
were improved from the prior week and the September small business optimism
index was better than anticipated. That
is a change; let’s see if the good news can continue.
Unfortunately, there
was no support for our better numbers from overseas: September Chinese imports and
exports fell, the Russian finance minister downgraded his country’s 2015 economic
growth forecast, September UK inflation declined and October German economic
morale was down. That is bad guys 4,
good guys 0.
***overnight,
September Chinese CPI rose less than expected while PPI fell 5.9%; September UK
unemployment declined and the IMF increased its 2015/2016 GDP growth estimates
for the UK.
Are
we already in a global recession (medium)?
Research
firm says Chinese banks nonperforming loan ratio (to equity) is six times higher
than reported (medium):
Bottom line: yesterday’s
the US economic data was upbeat (though nothing to make me stop work on
lowering our 2015 economic forecast), the earnings reports were mixed but the
international economic stats did not make great reading. None of this would necessarily be concerning
were it not for the elevated valuation of stock prices. Indeed the combination of six weeks of lousy
US economic numbers, an even longer string of poor international stats and declining
earnings expectations coupled with the Averages being only 5% off their all-time
highs, strikes me as a really bad risk/reward equation.
Update
on corporate earnings outlook (medium):
Four
warnings (medium):
Economics
This Week’s Data
Month
to date retail chain store sales improved over the prior week.
September
retail sales rose 0.1%, in line; ex autos, they fell 0.3% versus expectations
of -0.1%.
September
PPI was reported down 0.5% versus estimates of down 0.2%; ex food and energy,
it was down 0.3% versus forecasts of +0.1%.
Other
Dividends
point to an economic contraction (short):
The
Fed continues to struggle (medium):
Politics
Domestic
Defining
‘liberal’ (short):
International
The
new Silk Road (long):
Russia
sends its only aircraft carrier to Syria (medium):
Iran sends more troops to
Syria (medium):
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