The Morning Call
12/16/15
The
Market
Technical
The indices
(DJIA 17524, S&P 2043) continued their bounce off a very oversold condition
yesterday. The Dow ended [a] above its
100 moving average, which represents support, [b] below its 200 day moving
average, now resistance, [c] within a short term trading range {16919-18148},
[c] in an intermediate term trading range {15842-18295}, [d] in a long term
uptrend {5471-19343}, [e] and still within a series of lower highs.
The S&P
finished [a] back above its 100 moving average, negating Friday’s break; it
remains support, [b] below its 200 day moving average, now resistance, [c] in a
short term trading range {2016-2104}, [d] in an intermediate term uptrend {1982-2775},
[e] a long term uptrend {800-2161}, [f] still within a series of lower highs.
Volume declined;
breadth improved. The VIX (21.07) fell 7%,
ending [a] above its 100 day moving average, now support, [b] within short term,
intermediate term and long term trading ranges.
The long Treasury
declined again, closing below its 100 day moving, now support; if it remains
there through the close on Thursday, it will revert to resistance. It is also within very short term, short term
and intermediate term trading ranges.
More
on the high yield debt sell off (medium):
From
the resident optimist (medium):
Counterpoint
(medium):
GLD declined
1.2%, finishing [a] below its 100 day moving average, now resistance and [b]
within short, intermediate and long term downtrends.
Bottom line: the
Averages provided the strong follow through out of oversold territory---pin
action much more consistent with their deep technically oversold condition than
Monday’s paltry rise. That said,
technicals will probably have less impact on trading right now than what occurs
with today’s FOMC rate decision and the current options structure going into
Friday.
I continue to have
no feel for the short term direction of the Market. Longer term, the numerous divergences below the
Market surface, the turmoil in the high yield debt market which historically
has anticipated problems in the stock market along with our assessment that
stocks are very richly valued I believe argues against a successful challenge of
the upper boundaries of the indices long term uptrends and for a decline to
significantly lower levels.
Is
‘tax loss selling’ season over? (short):
Fundamental
Headlines
Yesterday’s
US economic news was mixed to negative: the December NY Fed manufacturing index
was less bad (-4.59) than expected (-7.0), November CPI was in line (0.0%), the
housing index was below estimates and month to date retail chain store sales
were less than in the prior week. Not helpful.
There
was no international data releases.
***overnight,
the Bank of China lower its GDP growth estimates for 2016; the December French
Markit composite PMI fell to 50.2 versus November’s 51.0 reading.
Of
course, everyone is focused on the FOMC meeting which will end today,
accompanied by its rate decision and Fed’s rationale for it. Although there is plenty of dissent as to the
wisdom of a rate increase, there seems to be universal acceptance that it is going
to occur---making this the most widely discounted rate hike in years. Will this lead to a ‘sell the news’ Market
reaction? The answer likely rests with
the narrative in the news conference following the meeting/decision; that is,
will the policy statement be some mealy mouthed apology and a promise to not be
aggressive in continuing to raise rates in the future or will it have a more
hawkish tone? I have no answer; but we
will know later today.
Here
are several opinions from others:
Three
charts the Fed should consider (medium):
A
map of prior Fed rate hikes (medium and today’s must read):
You
think that I am rough on the Fed; read this merciless hammering of Fed policy
(medium):
Stephen
Roach weighs in (short):
Why
low interest rates may be part of the new normal (medium and a must read):
Bottom line: Paraphrasing my comments from yesterday, I
think that the economy has weakened too much, that the stock market internals are
so broken and that the high yield debt market has deteriorated too such an
extent that mean reversion will begin to weigh heavily on the Markets. The pin action may hold up through year end
with the help of Santa Claus; but barring an extraordinary positive exogenous
event, I find a challenge of long term uptrends increasingly unlikely and that
it far more probable we should be concerned with the potential downside.
I am not
suggesting that investors run for the hills.
I am suggesting that they use the Market strength to take some profits
in winners and/or eliminating investments that have been a disappointment.
Altered
risk (medium):
Investing for Survival
To
be great, you must first be good:
News on Stocks in Our Portfolios
Economics
This Week’s Data
Month
to date retail chain store sales were up less than the prior week.
The
December housing market index came in at 61 versus expectations of 63.
Weekly mortgage
applications fell 1.1% while purchase applications were down 3.0%.
November
housing starts rose 10.4% versus estimates of an increase of 7.6%; building
permits were up 11.0% versus forecasts of unchanged.
Other
Politics
Domestic
What you need to
know about the upcoming Omnibus Bill (short):
Congress lifts
four decade oil export ban (medium):
International
Implications
of the French elections (medium):
The war in the Middle East widens
(medium):
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