The Morning Call
11/10/15
The
Market
Technical
The indices
(DJIA 17730, S&P 2078) experienced their biggest down day in over a month. It is tough to tell if that is a one off or
presages further downside---but clearly we will know soon enough. Whatever, not
much changed in the current technical picture. The Dow ended [a] below its 100 and 200 day
moving averages, both of which represent resistance, [b] in a short term trading
range {16919-18148}, [c] in an intermediate term trading range {15842-18295}and
[d] in a long term uptrend {5471-19343}.
The S&P
finished [a] below its 100 and 200 day moving averages, both of which represent
resistance, [b] in a short term trading range {2016-2104}, [d] in an
intermediate term uptrend {1952-2744} [e] a long term uptrend {800-2161}.
Volume increased
slightly; breadth was awful. The VIX (16.5)
was up 15%, but still ended [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 down again, ending below its 100 day moving average, still
support; but if it trades there through the close today, it will revert to
resistance. It closed right on the lower
boundary of its very short term trading range and within short term and
intermediate term trading ranges.
GLD rebounded,
bouncing off the lower boundary of its short term trading range---the first
hopeful sign in a long time. But I have
no reason to believe that it portends better performance. It remained [a] below its 100 day moving
average, now resistance, [b] in a short term trading range, [c] in intermediate
and long term downtrends.
Bottom line: hawkish
comments from one of the Fed’s most dovish regional bank chiefs (see below) seems
to have put additional weight on stock prices as the realization grows that the
Fed really and truly is finally going to raise rates. I noted on Saturday that the Market reaction
to date had been anything but a ‘taper tantrum’. Judging by yesterday’s performance that might
not last; but it will take a lot more than one day’s decline to match previous
occurrences. Of course, yesterday pin
action could have been nothing but noise. This is one of those wait and see
moments.
Stocks
year end performance is a seventh year of a presidential term (short):
Fundamental
Headlines
No
US economic news yesterday; and even if there had been, it would likely have
been ignored. Investor focus remained on
the odds of a December Fed rate hike which got a boost from a somewhat
unexpected source---hawkish comments from the dovish head of the San Francisco
Fed. This may have triggered one of
those ‘ah ha’ comments for investors and led to yesterday’s down draft in the
stock and bond markets.
Overseas, the
news is not improving: October Chinese exports fell while imports dropped at
three times that rate and the OECD lowered its global growth estimates for 2015
and 2016. There was one bit a positive news:
German exports were better than expected.
***overnight,
October Chinese CPI rose less than anticipated while PPI was down for the 44th
straight month; several members of the ECB said that there was growing
consensus to push interest rates further into negative territory; Greece and
its EU creditors are in a dispute over implementation of reforms delaying the
latest tranche of bail out funds.
Bottom line: the
December rate hike scenario received another bump yesterday and that seems to
have been enough to get the kind of reaction that I had been anticipating. Of course, one day does not a trend make;
plus the Market is entering its best season historically. So it is way too soon to know if the pin
action was just noise or reflected a delayed realization that rates are going
up.
I would note
that the bond market exhibited the same tendency as the stock market, i.e. not
much reaction to Yellen’s initial hawkish statement, then gradually picking up
steam to the downside. I tend to have
more confidence in the bond guys bets than stock investors. So for the two markets to act in sync
suggests that everyone wrote off the Yellen comments then, when the supporting chorus
joined in, began to take a rate hike more seriously. But as I said above, we have to wait for further
reaction to know whether yesterday’s decline should be taken critically.
I would use the
strength to take some profits in winners and/or eliminating investments that
have been a disappointment.
The
latest from John Hussman (medium):
Update
on third quarter earnings season (medium):
Economics
This Week’s Data
The
October small business optimism index was reported at 96.1 versus expectations
of 96.4.
October
import prices fell 0.5% versus estimates of down 0.1%; export prices declined
0.2% versus forecasts of down 0.3%.
Other
Goldman
thinks this expansion can last another four years (medium):
http://www.zerohedge.com/news/2015-11-10/goldman-sees-60-chance-current-expansion-continues-another-4-years-becomes-longest-e
http://www.zerohedge.com/news/2015-11-10/goldman-sees-60-chance-current-expansion-continues-another-4-years-becomes-longest-e
Politics
Domestic
More on the
student loan problem (medium):
Free speech in
America (medium):
International
More
on the political/economic problems facing Portugal (medium):
Update on Greece (medium):
The
oil war (medium):
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