The Morning Call
11/6/15
The
Market
Technical
The indices
(DJIA 17863, S&P 2099) continued to rest yesterday. The Dow ended [a] above its 100 moving
average, now support, [b] above its 200 day moving average, now support, [c] in
a short term trading range {16919-18148}, [d] in an intermediate term trading
range {15842-18295} and [e] in a long term uptrend {5471-19343}.
The S&P
finished [a] above its 100 moving average, now support, [b] above its 200 day
moving average, now support, [c] in a short term trading range {2016-2104), [d]
in an intermediate term uptrend {1950-2942} [e] a long term uptrend {800-2161},
[f] above its September highs, now representing support.
Volume was flat;
breadth mixed. The VIX (15.0) fell 2%, 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.
Below 13, it will again represent good portfolio insurance.
More
(medium):
The long
Treasury was down fractionally, ending slightly above its 100 day moving
average, still support, within very short term, short term and intermediate
term trading ranges and marginally below the lower boundary of the developing
pennant formation. The close right on
two boundaries (100 day moving average and the lower boundary of the pennant
formation) puts the bond chart at a critical technical junction. A bounce off these boundaries or break below
them should carry some significance with traders and, more importantly, provide
some insight as to exactly how serious the bond Market is taking the threat of
a December rate hike.
GLD was down again
and resumed its role as the ugliest chart in the universe. Gold just can’t get out of its own way. It closed [a] below its 100 day moving
average, now resistance, [b] below the lower boundary of its short term uptrend
for the third day, resetting the trend to a trading range, [c] in intermediate
and long term downtrends.
The dollar was
strong again, finishing back above the upper boundary of its very short term
downtrend, resetting it to trading range. It remains within short term and
intermediate term trading ranges. Unlike
TLT, the move appears to anticipate a December rate hike (which would likely
result in a stronger dollar).
Bottom line: the
Averages ambled about yesterday, doing more consolidating after the recent
spike but also reflecting investor caution ahead of today’s nonfarm payroll
number.
I continue to
believe the odds still favor the indices challenging their all-time highs and
the upper boundaries of their long term uptrends. Although I still believe that those
challenges, especially to the upper boundaries of the long term uptrends, will
be unsuccessful.
Meanwhile, gold
and the dollar appear to be reflecting the increased likelihood of a rate hike
while the bond market seems a bit more ambivalent. The nonfarm payrolls data could potentially
resolve this bit of dissonance.
Fundamental
Headlines
Yesterday’s
US economic data were mixed: weekly mortgage and purchase applications were
weak as were October retail sales; however, the third quarter nonfarm
productivity numbers were surprisingly strong.
So unless today’s payroll figure is a total bust, the stats this week
will be the best in the past eleven weeks.
Overseas,
the data wasn’t as good: German October factory orders was awful and October EU
retail sales were down 0.1%. In other
words, the US economy continues to get no support from abroad.
***overnight,
German October industrial output fell 1.1% and the Greek parliament approved
reforms stipulated by international lenders in order to receive additional
bailout funds.
Bottom
line: so far investors have handled the
threat of a December rate hike calmly.
Yesterday’s strong third quarter productivity number on top of an
already upbeat week of the economic data had all the potential of confirming
any fears investors may have regarding a tighter monetary policy; but
didn’t.
Given the past
investor paranoia associated interest rate increases, why is everyone so
sanguine now? (1) I was wrong about Yellen testing the Market---she was really
doing it for show and everybody but me knows for sure that there is no rate
hike coming or (2) there is a rate hike coming but I am wrong that a
normalization of monetary policy will not have a negative impact on the stock
prices or (3) the payroll number has always been the numero uno stat by which
the investors gauge Fed policy and they are just waiting for 8:30 this morning
or (4) the old standby---noise. We will
know more shortly.
***And now,
gentlemen, for some Abbott and Costello (whose on first?) comic relief: If any of you ever doubted that the Fed has
absolutely no clue what it is (has been) doing, comes another Fed statement
that says a bad jobs number is still good (economic) news meaning the Fed could
raise rates (bad Fed news) in
December. Confused? So are they.
However, it may be the best indication yet that we are going to get
higher rates in December. (must read):
I believe that
anyone buying stocks at current valuations is assuming an unnecessary and
unacceptable level of risk. Hence, I
would not chase stock prices at these levels.
Indeed, I would use the strength to take some profits in winners and/or
eliminating investments that have been a disappointment.
Bullish
hopes, bearish signals (medium):
Economics
This Week’s Data
October
retail sales were weak.
October
nonfarm payrolls rose 271,000 versus expectations of 190,000; unemployment
declined to 5.0% from 5.1%.
Other
Saudi’s
lower oil prices to Europe (medium):
Politics
Domestic
Club for Growth
on Trump (medium):
International War Against Radical
Islam
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