The Morning Call
1/22/16
The
Market
Technical
The indices
(DJIA 15882, S&P 1868) traded in a fairly narrow range yesterday, giving
Market participants some relief from the recent volatility heartburn. 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 {16888-17620}, [c] back
above the lower boundary of its intermediate term trading range {15842-18295},
negating Wednesday’s break, [d] in a long term uptrend {5471-19343}.
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 {1933-2023}, [d] back above the lower boundary of its
intermediate term trading range {1867-2134}, negating Wednesday’ break, [e] in
a long term uptrend {800-2161}.
Volume fell;
breadth was mixed to negative. The VIX
was down 3%, ending [a] above its 100 day moving average, now support and [b]
in short term, intermediate term and long term trading ranges.
The long
Treasury declined, but finished above the upper boundary of its very short term
trading range for a second day, thereby resetting to an uptrend. It also ended above its 100 day moving
average, now support and within short term and intermediate term trading
ranges.
GLD was up
fractionally, but still closed [a] below its 100 day moving average, now
resistance and [b] within short, intermediate and long term downtrends.
Bottom line:
while yesterday’s pin action was much more subdued than we have experienced of
late, the indices still managed to recover above the lower boundaries of their
intermediate term trading ranges. That
is important not just because major support levels held but also because there
is deep chasm below these levels before the next support levels exist. The bad news is that there was only modest
follow through from Wednesday’s huge intraday bounce. I still think that this Market could go
either way over the short term, though yesterday’s close does tilt me towards
the upside---and remember the Market is still deeply oversold. As always, follow through is important.
Some
statistics on annual stock returns in years with 10%+ drawdowns (short):
The
macro momentum bubble (medium):
Fundamental
Headlines
Yesterday’s
economic stats were once again to the downside: weekly jobless claims were
disappointing and the January Philadelphia Fed manufacturing index was down
slightly less than expected but the December number was revised down almost
double its original reading.
In
addition, we received another negative anecdotal datapoint. This time from a major railroad.
Overseas,
ECB left key rates unchanged; and in a subsequent news conference, Draghi
observed that inflation was not a problem in the EU, but the economy was
showing signs of weakness. So he whipped
out his old reliable ‘whatever is necessary’ shtick; and the Markets seemed to
love it. He was joined in the easy money
dance by China which made substantial liquidity injections into its financial
system and Japan which will consider more QE---after saying earlier that more
QE would do no good
Finally, the
Bank of Russia held an emergency meeting due to the declining ruble, mirroring the
turmoil in many other currency markets.
***overnight
the January Markit EU composite flash PMI fell to the lowest level in eleven
months.
Bottom line: no
improvement in the US economic news; and the problems of the global central
banks are mounting: declining economic growth, weak currencies and financially
shaking banking systems. Not a
prescription for stronger economies or Markets.
That said, stocks are way overvalued even on a slow economic growth
scenario both here and abroad accompanied by half way sensible monetary policy.
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’.
The
latest from George Soros (short):
Investing for Survival
Ten
truths about bear markets:
Economics
This Week’s Data
The
December Chicago Fed national activity index was reported at -30.
Other
The
dead hand of debt (medium and a must read):
Has
government regulation stymied entrepreneurship (medium)?
Van
Hoisington reviews 2015 and comments on the Fed and QE (medium and a must read)
Politics
Domestic
You can’t make
this stuff up (short):
International War Against Radical
Islam
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