Wednesday, January 20, 2016

The Morning Call--A big love stew of bad news

The Morning Call

1/20/16

The Market
         
    Technical

The indices (DJIA 16016, S&P 1881) gave us another roller coaster ride yesterday, then finishing up only slightly.  The Dow closed [a] below its 100 day moving average, now resistance, [b] below its 200 day moving average, now resistance, [c] below the lower boundary of a short term downtrend {16903-17665}, [c] in an intermediate term trading range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] above its August 2015 low and [f] and still within a series of lower highs.

The S&P finished [a] below its 100 day moving average, now resistance, [b] below its 200 day moving average, now resistance [c] below the lower boundary of a short term downtrend {1938-2028}, [d] in an intermediate term trading range {1867-2134}, [e] in a long term uptrend {800-2161} [f] above its August 2015 low and [g] still within a series of lower highs. 

Volume fell; breadth was poor.  The VIX declined slightly, ending [a] above its 100 day moving average, now support and [b] in short term, intermediate term and long term trading ranges. 
           
I noted yesterday the seeming complacency in the Markets (as exhibited by gold and the VIX) despite the recent plunge.  Here is some more detailed support of that notion: (medium):

The long Treasury fell fractionally finishing right on the upper boundary of its very short term trading range, negating Friday’s break.  It also ended above its 100 day moving average, now support and within short term and intermediate term trading ranges.

GLD was down, closing [a] below its 100 day moving average, now resistance and [b] within short, intermediate and long term downtrends. 

Bottom line: while the indices remain extremely oversold, they have to date been unable to mount much of a recovery.  That said, yesterday they tested the lower boundaries of their intermediate term trading ranges for the second time in as many days.  This failed second attempt could provide the fuel for that oversold bounce.  As always, the key is follow through. 
           
    Fundamental

       Headlines

            Only one US datapoint yesterday: January homebuilders’ confidence was below estimates.  On the other hand, there were a number of stats out of China: fourth quarter Chinese GDP grew at the slowest rate in 25 years and December Chinese industrial output, retail sales and fixed investments were below expectations.  In addition, the IMF lowered its 2016/2017 global growth estimates.  The beat goes on.

Bottom line: the economic news continues to deteriorate; though to be clear, I don’t think a recession is a necessary precondition for lower stock prices.  Mean reversion to Fair Value is sufficient.  Unfortunately, recessions (US), financial crisis (China) and central bank monetary policy mistakes (the globe) can trigger or aggravate that mean reversion process.  Lucky us, we have the makings of a big love stew of them all.

I am not suggesting that investors run for the hills.  I am suggesting that on any rally that (1) they take some profits in winners that have held up during this decline and/or eliminate investments that have been a disappointment and (2) they lose the notion of ‘buying the dips’.

            Market selloffs when there is no recession (medium):

            The latest from Ray Dalio (short):

       Investing for Survival
   
            Financial mistakes people make when retiring abroad:
               

    News on Stocks in Our Portfolios
 
Economics

   This Week’s Data

            January homebuilders’ confidence came in a 60 versus expectations of 62.

            Weekly mortgage applications rose 95 but purchase applications fell 2%.

            December housing starts dropped 2% versus estimates of a 2 increase; building permits declined 5% versus forecasts of -5.5%.

            December CPI came in -0.1% versus projections of 0%; ex food and energy, it was up 0.1% versus consensus of up 0.2%.

   Other

            The rationale for a 2016 recession (medium):

Politics

  Domestic

Larry Summers on totalitarianism on college campus’ (short):

Trump has no clue about free markets (short):

  International War Against Radical Islam

            Saudi’s threaten to acquire nukes (short):






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