The Morning Call
11/17/15
The
Market
Technical
The indices
(DJIA 17483, S&P 2053) staged a major comeback yesterday after two rough
days in the Market. The Dow ended [a]
above its 100 moving average, which represents support, [b] below its 200 day
moving average for a third day, now support; but if it remains below this MA
through the close today, it will revert to resistance, [c] within 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] back above its 100 moving average {which represents support},
negating Friday’s challenge, [b] below its 200 day moving average for a third
day, now support; if it remains below this MA through the close today, it will
revert to resistance, [c] in a short term trading range {2016-2104}, [d] in an
intermediate term uptrend {1961-2754} [e] a long term uptrend {800-2161}.
Volume rose;
breadth improved. The VIX (18) was down
10%, ending [a] back below above its 100 day moving average {now resistance},
negating Friday’s upside challenge, [b] back below the upper boundary of its a
short term downtrend, negating Friday’s challenge and [c] in intermediate term
and long term trading ranges.
The long
Treasury fell slightly, closing below its 100 day moving average, now
resistance but within very short term, short term and intermediate term trading
ranges.
GLD was up
fractionally, ending [a] below the lower boundary of its short term trading
range for a second day; if it remains there through the close today, it will
re-set to a downtrend, [b] below its 100 day moving average, now resistance,
[c] in intermediate and long term downtrends.
Bottom line: stocks
closed last Friday modestly oversold, so a bounce yesterday was not that
unexpected. That said, given the events in
Paris, most investors probably would have bet on a down Monday in the
Market---which luckily most couldn’t do. There are likely multiple reasons for this
performance aside from the Market’s oversold condition: (1) a very strong
positive seasonal bias and (2) a decline in the odds of a December rate hike [see
below] although that reasoning was not supported by the pin action in bonds---which,
as you know, I pay a lot of attention to.
My conclusion: I am a little confused/nervous
made all the worse by the big swings in volatility. I continue to watch for follow through, one
way or the other.
Fundamental
Headlines
We
received one datapoint yesterday: the November NY Fed manufacturing index was
well below estimates. There was also a negative
anecdotal stat: imports at the three largest US ports fell in both September
and October.
Overseas,
the news wasn’t any better: Japanese third quarter GDP fell and the second quarter
figure was revised down; in addition, the ECB said that nine large EU banks
have a cumulative capital shortfall of $1.9 billion.
***overnight,
October UK inflation was reported at -0.1% while factory output down 1.3%;
copper prices continue to crash.
Of
course, most of the air time, newspaper ink and on line blogging was dedicated
to last weekend’s attack in Paris. Not
to ignore the tragedy; but this is a financial blog--- my take is that if the
Fed wants to use it, it has been handed a ‘get out of jail free’ card on the
December rate hike---which is to say, that if the economic numbers continue to
come in subpar, the Fed can use whatever economic disruptions occur as a result
of the Paris attack as an excuse to not raise rates. Indeed, I think that at least part of the
driving force in Monday’s price advance was the lessening of odds of such a
hike.
That said, [a] if
there were widespread consensus on that view, then the long Treasury would have
been up {it was down} and [b] not to beat a dead horse, the Fed isn’t watching
the economy, it is watching the Market; and however ironic it may be, if the
Market continues to rally, I think that the Fed will go through with the rate
increase.
Bottom line: the
US may or may not be stabilizing at a lower rate of economic growth. However, global economies continue to
deteriorate; and Paris attack’s potential negative impact on travel and tourism
will likely only make matters worse.
To date, the Fed
has ostensively ignored this data and chosen to push the line that ‘all is well’. So unless we get some absolutely horrendous
economic news that can’t be painted in a more favorable light or the Market
tanks, I believe that the Fed will stay on course to raise rates in December. My conclusion hasn’t changed: whenever the
Fed starts to normalize monetary policy, Market pain will be incurred; and the
longer it waits, the greater the pain.
The most
important point is that I would use the strength to take some profits in
winners and/or eliminating investments that have been a disappointment.
Gundlach
doubts a December rate hike (short):
Japan
and QE (medium):
Investing for Survival
Why
indexing works:
News on Stocks in Our Portfolios
Economics
This Week’s Data
October
CPI rose 0.2%, in line; ex food and energy, it was also up 0.2%, also in line.
Other
Politics
Domestic
This is what higher
education in the US has come to (medium):
International War Against Radical
Islam
ISIS
next step (short):
Ron Paul on Paris (medium):
Tuesday morning humor (2 minute video):
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