The Morning Call
12/3/15
The
Market
Technical
The indices
(DJIA 17729, S&P 2079) sold off hard yesterday on multiple, disparate news
events. The Dow ended [a] above its 100
moving average, which represents support, [b] above its 200 day moving average,
now support, [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 remained below the prior lower high.
The S&P
finished [a] above its 100 moving average, which represents 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 {1971-2764} [e] a long term
uptrend {800-2161}, [f] and, having closed above the prior lower high on
Tuesday, it more than reversed that surge, leaving the S&P with a lower
high.
Volume fell;
breadth was mixed. The VIX (15.9) was up
9%, ending [a] below its 100 day moving average, now resistance, [b] in a short
term downtrend {though near its upper boundary} and [c] in intermediate term
and long term trading ranges.
The long
Treasury was up again, finishing above its 100 day moving average for a third
day, thereby reverting from resistance to support. It finished within very short term, short
term and intermediate term trading ranges.
I would add that rates across almost all other fixed income asset
classes rose (prices fell), suggesting a flight to quality---a subject that I have
been dwelling on of late.
GLD fell 1.5% and
ended [a] below its 100 day moving average, now resistance and [b] back below
the lower boundary of its short term downtrend and [c] within intermediate and
long term downtrends.
Oil plunged 3.5%
on news that there would be no production cut from the Saudi’s. The dollar continues to trend upward,
remaining in a very short term uptrend.
***overnight,
there were rumors that Saudi Arabia is willing to consider production cuts if
other OPEC members will do the same.
More dollar
strength ahead? (short):
Bottom line: any
positive technical developments on Tuesday were dramatically reversed
yesterday, though volume fell and breadth was mixed where I would have expected
it to be negative (a minus). However, both
indices are still in a tight trading range that has been building since
mid-November, albeit at the lower end of the range (a plus). In addition, there were a number of news
events yesterday (Fed, crashing oil prices, the shootings in California) that
seemingly impacted the pin action but whose effect could quickly dissipate (?). In short, there are a lot of cross currents. So the Market trend is uncertain; we will
have to await follow through.
The
bull market is still alive (short):
Fundamental
Headlines
Yesterday’s
economic data was mixed: weekly mortgage applications fell but purchase applications
rose, the November ADP private payroll report recorded gains much higher than
expected and third quarter nonfarm productivity was up in line while unit labor
costs were double what was forecast (which has to make the Fed happy).
Overseas,
Chinese stocks are soaring on expectations of additional Bank of China
stimulus; November EU inflation was lower than anticipated which will help the
ECB’s case for more QE (see below).
***overnight, EU
November services and composite PMI’s came in below expectations while the
Chinese November composite PMI was above.
However, as far as economic
news goes, it was a central bank day:
(1)
Yellen in a speech maintained that the economic data
was sufficiently positive that the December rate hike was still on schedule. Indeed, in a remarkable feat of sophistry, she
argued that if the FOMC waited to raise rates, it would run the risk of being
too late because the economy was growing so fast [cue the canned laughter]. If you want to read her entire speech, be my
guest:
(2)
the latest Fed Beige Book was released. Its basic message was that economic growth was
modest across all regions of the
country,
(3)
as noted above, rumors out of China are that another
round of QE is coming,
(4)
and last but certainly not least, Draghi is expected to
unleash the mother of all QE’s today.
***overnight,
ECB lowered rates another ten basis points but failed to institute the
aggressive QE that had been promised,
What
happened the last time the Fed hiked rates as the US slid into recession
(medium):
The
risk of divergent central bank policies (medium):
Rate
hikes and stock prices (short):
Finally,
another mass shooting in California held media attention for most of the latter
part of the day and seemed to have a depressing effect on stock prices.
Bottom line: yesterday’s
economic numbers were both mixed and overshadowed by other news. The most important was central bank
related. Our own Fed chairperson
provided yet another endorsement of a December rate hike and that was backed up
by the positive economic anecdotal evidence out of the Fed Beige Book.
Don’t ask me
where these guys get their data because it certainly doesn’t match up with what
is being reported by the various statistical bureaus. But then, the Fed went down the rabbit hole three
or four years ago; so it sees nothing as it appears.
As you know, my
thesis has been that the Markets are more likely to be impacted by a return to
a more normalized monetary policy than the economy. I remain convinced that if the Fed goes through
with the December rate hike and the economy continues to perform as weakly as
it has over the last three months, it will lose what credibility it has left
and that will only exacerbate the impact on the Market.
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.
Tracking
dividend cuts and what it means (short):
Thoughts
on valuation (short):
Peak
margins and stock prices (short and a must read):
Investing for Survival
State
by state tax guide for retirees:
News on Stocks in Our Portfolios
Revenue of $7.06B (+61.6% Y/Y) in-line.
Economics
This Week’s Data
Weekly
jobless claims rose 9,000, in line.
Other
Is
the party over for oil? (medium):
Politics
Domestic
The student body
demands virus spreads (medium):
Barry Ritholtz
on the proposed Highway Bill (medium):
Thursday morning
humor (cartoon):
International War Against Radical
Islam
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