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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