The Morning Call
10/15/15
The
Market
Technical
The indices
(DJIA 16924, S&P 1994) suffered a bit more indigestion yesterday; but it
still looks like they are just working off an overbought position. The Dow ended [a] below its 100 and 200 day
moving averages, both of which represent resistance, [b] in a short term
downtrend {17084-17797}, [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 {1988-2049}, [d] in an intermediate term uptrend {1935-2728}
[e] a long term uptrend {797-2145}.
Volume increased---continuing
the recent pattern of up volume on down days and down volume on up days. Breadth was mixed. The VIX (18.3) was up 2% (less than I expected
given the Averages performance) finishing [a] above its 100 day moving average one
day, 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 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 1.85%,
closing [a] above its 100 day moving average, now support [b] above the upper
boundary of its a short term trading range; if it remains there through the
close on Friday, it will re-set to a short term uptrend, [c] above the upper boundary
of its intermediate term downtrend; 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.
http://www.zerohedge.com/news/2015-10-14/gold-soars-green-year-date-breaks-above-key-technical-level
The dollar fell
below the lower boundary of its short term trading range; if it remains there
through the close on Friday, it will re-set to a short term downtrend. It remained below its 100 day moving average.
Bottom line:
stocks continued 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.
That said, there
was some noticeable pin action in gold and the dollar---with gold blasting
through the upper boundaries of both its short and intermediate term trends and
the dollar weakening. Both support a
weak economic growth, low interest rate environment. However, their moves indicated a lot more
angst (about a poor economy) than reflected in the stock market. Whether they are outliers or providing
guidance should be clear in the coming days.
Is
the rally over? (medium):
Or
are stocks just range bound (medium):
Fundamental
Headlines
Yesterday’s
US economic news was not good: September retail sales rose in line but ex
autos, they fell more than anticipated; both the headline and ex food and
energy September PPI were down more than estimates and August business
inventories were flat while sales were down.
There were also terrible weekly mortgage and purchase applications
numbers; but this was largely a reversal of last week’s revised computational
methodology.
There
were also several negative anecdotal developments: (1) the Fed Beige Book was a
bit more circumspect than its prior rendering---likely reflecting the stream of
lousy data of late, (2) Walmart slashed its earnings guidance, supporting the
aforementioned poor retail sales numbers (3) Delta’s CEO said that there was a worldwide
glut of wide bodied aircraft [Boeing]---yet another example of the
misallocation of assets fostered by zero interest rates and (4) Illinois delayed
pension payments, citing liquidity problems (medium):
Are we already
in a global recession (medium)?
Overseas, the
news was only slightly better: September Chinese CPI rose less than expected
while PPI fell, a research firm says that Chinese banks’ nonperforming loan
ratio (to equity) is six times higher than reported and Brazil retail sales
fell 9.6% year over year. The good news
was that September UK unemployment declined and the IMF increased its 2015/2016
GDP growth estimates for the UK.
***overnight,
central bankers around the globe were talking up more QE; in an article, Fed
whisperer Hilsenrath said that there would likely be no rate hike in 2015.
Bottom line: Tuesday’s
upbeat data gave way to yesterday’s return to the negative dataflow of the last
six weeks; especially worrisome was the September retail sales number which is
a primary indicator. The outlook is made
all that much worse by a number of discouraging anecdotal events and continuing
lousy international stats.
Investors seem
to be stuck in the mindset that poor data means an easy Fed which is in turn a
major plus for the stock market. They,
of course, are likely correct about the ‘easy Fed’ part. However, assuming that the economy is just
bad enough to keep the Fed on the sidelines but good enough to avoid recession
(keeping stocks rising), may be putting too fine a point on their forecast. Last time I checked, disappointing corporate
earnings and recession were not good for stocks.
As I noted
yesterday: ‘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.’
For
the bulls (short):
Economics
This Week’s Data
August
business inventories were flat, as expected; however, sales fell 0.6%.
The
Fed released its latest Beige Book report which, not surprisingly, was more
downbeat than its predecessor---likely another reason for no rate hike this
year.
September
CPI fell 0.2%, in line; ex food and energy, it was up 0.2% versus estimates of
+0.1%.
Weekly
jobless claims fell 7,000 versus forecasts of up 7,000.
The
October NY Fed manufacturing index came in at -11.36 versus consensus of -7.0.
Other
The
Atlanta Fed now has third quarter GDP up 0.9%.
Politics
Domestic
International War Against Radical
Islam
US
Syrian policy rapidly becoming a joke (medium):
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