The Morning Call
10/16/15
The
Market
Technical
The indices
(DJIA 17141, S&P 2023) attacked the September highs for the second time
yesterday; though to date little has changed in the technicals. The Dow ended [a] below its 100 and 200 day
moving averages, both of which represent resistance, [b] in a short term
downtrend {17076-17792}, [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, [b] below the upper boundary of a very short term downtrend, [c] in
a short term downtrend {1986-2048}, [d] in an intermediate term uptrend {1935-2728}
[e] a long term uptrend {797-2145}.
Volume increased---a
positive after the recent period in which stocks advanced on declining volume. Breadth was strong. The VIX (16.0) plunged 11% finishing [a] back below its 100 day moving
average, which I am leaving on neutral, awaiting more follow through, [b] within
a short term downtrend and [c] in intermediate term and long term trading
ranges.
The long
Treasury was off slightly, ending above its 100 day moving average, still
support; and within very short term, short term and intermediate term trading
ranges.
GLD declined,
but still closed [a] above its 100 day moving average, now support [b] above the
upper boundary of its a short term trading range for the second day; if it
remains there through the close today, it will re-set to a short term uptrend,
[c] above the upper boundary of its intermediate term downtrend for a second
day; if it remains there through the close next Monday, it will re-set to an
intermediate term trading range and [d] within a long term downtrend. If GLD can successfully challenge both its
short and intermediate term trends, I will view that as a pretty good sign that
a bottom is in.
The dollar rose
back above the lower boundary of its short term trading range, negating
yesterday’s break. It remained below its
100 day moving average and within an intermediate term trading range.
Bottom line:
stocks had worked off enough their overbought position to give them room to
move up again; and move up they did. The
S&P closed right on its September high.
If it breaks through this boundary, then I think the odds of a challenge
of its all-time high go up considerably.
This might be a good set up for a nimble trader; however, given the
fundamentals and disparity between current prices and our Fair Values, it is
not a place for investors.
Gold, which didn’t
do much yesterday, appears to be on the cusp of successfully challenging three
resistance levels (100 day moving average, upper boundaries of its short and
intermediate term trends). If
successful, it certainly suggests that it has finally bottomed. If that occurs, I will likely nibble.
The
primary trend matters (short):
Fundamental
Headlines
Yesterday’s
US economic news was mixed to negative. The
good news was that weekly jobless claims were lower than expected. The mixed news was the September CPI
numbers. The bad news was the October NY
and Philly Fed manufacturing indices as well as the September US budget
surplus. In addition, yesterday’s
earnings reports were anything but inspiring.
***overnight,
Fitch downgraded Brazil’s credit rating and India reported its September import
and exports were both down over 25% year over year.
None
of this mattered because once again a dovish Fed captured the hearts and souls
on investors. In this particular case,
an article by Fed mouthpiece John Hilsenrath suggested that a rate hike was off
the table for 2015---which was aided by comments from global bankers advocating
more QE. That seemed to kick in the
stock buying afterburners; and the rest, as they say, is history.
Bottom line: poor
US economic data---not a problem; lousy international economic stats---not a
problem; disappointing earnings reports---not a problem; an easy Fed, pursuing
a policy with virtually no redeeming qualities and few visible affects other
than the gross misallocation of asset investments and prices---a twenty one gun
salute.
What is wrong
with this picture? Do investors believe that no matter how poorly
the economy/corporate earnings perform as long as the Fed is easy, nothing else
matters? That makes no sense. True they may think that the economy is just
bad enough to keep the Fed on the sidelines but good enough to avoid recession. But that is a very fine line to walk,
especially with stocks 5% off their all-time highs. I continue to believe that fundamental
risk/reward equation is very unattractive.
Economics
This Week’s Data
The
October Philadelphia Fed manufacturing index was reported at -4.5 versus
expectations of -1.0.
The
September US Treasury budget surplus was $91.1 billion versus estimates of
$95.0 billion.
Other
The
last thirty years of economic history is about to change (medium):
Update
on big four economic indicators (medium):
Politics
Domestic
International
Update
on Chinese actions in the South China Seas (medium):
Turkey
shoots down drone of unknown origin (medium):
Syrian, Iranian, Russian
assault on Syria’s largest city begins (medium):
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