The Morning Call
11/19/15
The
Market
Technical
The indices
(DJIA 17737, S&P 2083) did another moon shot yesterday. The Dow ended [a] above its 100 moving
average, which represents support, [b] back above its 200 day moving average
one day after reverting to resistance; so I am going to leave it as support,
[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] above its 100 moving average which represents support, [b] back
above its 200 day moving average one day after reverting to resistance; so I am
leaving as support, [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 fell
dramatically; breadth was very positive.
The VIX (16.6) was down 11%, ending [a] back below its 100 day moving
average {now resistance}; negating yesterday’s upside break, [b] back below the
upper boundary of its a short term downtrend; negating yesterday’s upside break
and leaving it in a downtrend and [c] in intermediate term and long term
trading ranges.
The long
Treasury rose, closing below its 100 day moving average, now resistance but
within very short term, short term and intermediate term trading ranges.
GLD was up
slightly, ending [a] in a short term downtrend, [b] below its 100 day moving
average, now resistance, [c] in intermediate and long term downtrends.
The dollar
continues its uptrend off its October lows, trading over its 100 day moving
average and within very short term, short term and intermediate term trading
ranges.
Bottom line: the
Averages did a Titan III shot yesterday, on weak volume but nonetheless
breaking that developing very short term downtrend. They did so in the face of FOMC minutes
released yesterday, reinforcing the probability of a December rate hike. That was something of a surprise; although
stock prices have now soared twice this week on ostensively bad news (Paris
attacks on Monday, FOMC minutes yesterday).
In addition, the long Treasury and
gold were up---not suggestive of rate hike (and you know how I much I respect
the bond guys).
One explanation offered
for yesterday’s pin action was that Market participants were enthused that the
Fed felt the economy was strong enough to raise rates. Perhaps, but surely they can read the
newspapers and conclude that the economy is not that strong. Further, the bond market’s performance did
not support that view.
The most
plausible explanation for this seemingly unusual behavior centers around strong
seasonal factors. Clearly, if this is
correct, then the odds have gone up for a challenge of the Averages prior highs
and upper boundaries of the indices long term uptrends before New Year’s---although
as you know, I believe that those will be unsuccessful.
I remain
somewhat perplexed by the recent pin action.
Fundamental
Headlines
Yesterday’s
US datapoints were mixed in quantity but negative in quality: weekly mortgage and
purchase applications were up strong but October housing starts (primary
indicator) fell three times more than expected.
***overnight, October Japanese exports fell 2.1% while imports were down 13.4%
In
addition, the Fed released the minutes from its latest meeting. The two most important takeaways are:
(1) it was its
intent in the FOMC meeting’s accompanying statement to signal that a December
rate hike was likely, though the final decision was still ‘data dependent’. Hogwash, its final decision is not ‘data
dependent’, it is ‘Market dependent’; and right now, the Market is making that
decision easy. The only question is,
will my thesis be correct that a transition to normal monetary policy will be
bad for the Market,
(2) consensus
was that both the US and global economies were improving. I don’t even know
where to start on this statement. In
these pages I record the data from both here and abroad. I have left nothing out; indeed, I have tried
to include relevant anecdotal evidence. Nowhere
in those stats can I come up with a moniker like ‘improving’. The closest I can come is that in two of the
last twelve weeks the numbers have been mixed to positive. Granted, those two occurred fairly close
together; but even if they had been spectacular---which they weren’t---that ain’t
‘improving’.
This
from Fed mouthpiece, Hilsenrath (medium):
Goldman’s take (medium):
http://www.zerohedge.com/news/2015-11-18/did-goldman-sachs-just-find-smoking-gun-todays-fomc-minutes
The ECB also released the
minutes of its last meeting. But little
surprise as it had trumpeted more QE far and wide (short):
Bottom line: staying
with the notion of Market schizophrenia which I mentioned yesterday, consider
the last three trading days: Monday, stocks rally on Paris tragedy because it
likely reduces the odds of a December rate hike; Tuesday, stocks are
flat on a rumor of a bombing Germany; Wednesday, stock are up big on lousy
housing data (primary indicator), a shootout in Paris and Fed minutes that reaffirm
the likelihood of a December rate hike.
That
said, I try my best to separate Market movement from any specific event or
datapoint. In other words, there could
be something else occurring, not obvious to me, that drove the pin action this
week. Or it could be just noise. Certainly, either of those explanations would
better suit the Market’s performance than the more obvious event connections
that I suggested above. But I will
observe that the moment the Fed minutes hit the tape yesterday, stocks kicked
on the afterburners.
Back to the news
flow, the stats here and abroad are not indicative of an improving economic
outlook, irrespective of what Yellen says.
Further, as I noted yesterday, ‘it
is tough for me to believe that an intensification of the global war against
radical islam is good for either stocks or the economy, irrespective of what
the Fed does---‘.
But
none of this is necessarily indicative of lower stock prices---as long as a
poor economy, dramatically mispriced and misallocated assets and a more
geopolitically unstable world are at least partially reflected in current
prices. But they are not. In fact, if anything, prices appear to be
discounting just the opposite.
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.
Notes
from Lance Roberts (medium):
Economics
This Week’s Data
Weekly
jobless claims fell 5,000 versus expectations of -6,000.
The
November Philadelphia Fed manufacturing index came in at 1.9 versus estimates
of 0.0.
Other
Politics
Domestic
Quote of the day
(short):
International War Against Radical
Islam
The
cluelessness on US foreign policy (medium):
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