The Morning Call
10/21/15
The
Market
Technical
The indices
(DJIA 17217, S&P 2030) were off slightly yesterday, but remained above
their September highs for a third day.
The Dow ended [a] below its 100 and 200 day moving averages, both of
which represent resistance; it retreated from its 100 day MA {17250}, [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 fell back from its 100 day MA {2039}, [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 {1939-2731}
[e] a long term uptrend {797-2145}.
Volume fell; breadth
was mixed. The VIX (15.75) rebounded, finishing [a] below its 100 day moving average,
now resistance, [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, within very short term, short term and intermediate term trading
ranges and continues to develop a pennant formation.
And
Treasuries much more worried about the debt ceiling talks than stocks (short):
GLD rose, closing
[a] above its 100 day moving average, now support [b] in a short term uptrend
[c] in intermediate and long term downtrends.
In my opinion, it needs to successfully challenge the upper boundary of
its intermediate term downtrend to conclusively establish that a bottom has
been made.
Bottom line:
stocks remain modestly overbought, but they continue to work off that condition
by sliding sideways versus retreating---a decent signal that there is more upside. Supporting that notion is the fact that the Averages
remain above their September highs. On
the negative side, they both fell back from their 100 day moving averages. Remember these MA’s provided support to the indices
for almost a year before finally being broken; so they should represent the
same type of resistance on the upside.
In other words,
stocks are facing a number of countervailing forces all of which are in close
proximity. My technical bias is still on
the side of another challenge of the Averages all-time highs; though on the
fundamental side, (1) I don’t think that challenge will be successful and (2) Fair
Value will ultimately pull prices lower.
Make
or break moment for stocks? (medium):
Fundamental
Headlines
We
received two datapoints yesterday: month to date retail chain store sales were
a bit better than the prior week, housing starts were strong but building
permits were equally weak. I noted
yesterday that the improved housing index likely portended better numbers for
all that segment’s measurements---so far that was only partially true with the
permits stat disappointing. But we get
existing home sales later this week. All
that said, the housing sector has a multiplier effect on the economy; and if
the housing index indeed points to a strong market, it may be enough to keep the
economy out of recession.
There
was no international datapoints.
However, there were more earnings/revenue misses from high profile
companies: United Technologies, Yahoo and Chipotle.
Earnings
expectations are falling (short):
***overnight,
Japanese September exports grew at the slowest pace in over a year.
Bottom line: strong
housing starts are definitely an economic plus though dampened somewhat by the
poor building permits number. The other
major item yesterday was more poor earnings reports, especially among industry
leaders. So far the cumulative earnings
beats are well ahead of misses. The problem
is that the big companies are dominating the misses which means that aggregate corporate
profits are coming in below expectations.
And worse,
estimates are accelerating to the downside. Normally, this is not good for stocks---‘normally’
being the operative word. As I am fond of reminding you, right now, we
are in uncharted waters with respect to monetary policy. To date, QE has kept investors positively ecstatic
in the face of a steady stream of lousy news---at least partially because
corporations were able to borrow money cheap to buy back shares which jacked up
profits per share. But it now appears that the buy back/higher manufactured
earnings story is ending as the E in P/E is starting to falter.
However, I am
not going to tell you that this is the trigger that alters the investment
equation in investors’ minds. Gosh only,
they have been ignoring (what is to me) the obvious for more than a year. They can certainly do it for another
year.
I will tell you that
I am not going to start buying that line of logic and I will take the
appropriate action on any of our holdings that either trades within its Sell
Half Range or its underlying company’s fundamentals no longer qualify for our
Universe.
Economics
This Week’s Data
Month
to date retail chain store sales were up slightly from the prior week.
Weekly
mortgage and purchase applications were up strong but continued to be impacted
by the new lending disclosure rules.
Other
Signs
of peak employment? (medium):
And
now the good news (medium):
Politics
Domestic
International War Against Radical
Islam
Anti-muslim
protests heat up as more emigrants arrive (medium):
As tensions
continue to escalate in the Middle East (medium):
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