The Morning Call
1/27/16
The
Market
Technical
The indices
(DJIA 16167, S&P 1903) staged another low volume bounce yesterday. 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 {16857-17604}, [c] within
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] 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 {1925-2014}, [d] in an intermediate term trading range
{1867-2134}, [e] in a long term uptrend {800-2161} and [f] still within a series of lower
highs.
Volume was down;
breadth improved. The VIX was down 7% but
still ended [a] above its 100 day moving average, now support and [b] in short
term, intermediate term and long term trading ranges.
This
on the VIX (short):
The long
Treasury rose fractionally, finishing above its 100 day moving average, now
support and within short term and intermediate term trading ranges.
GLD was up 1%
again on heavy volume, ending [a] above its 100 day moving average; if it
remains there through the close on Thursday, it will revert from resistance to
support and [b] within short, intermediate and long term downtrends.
Bottom line: it
would appear that the Averages are now in a testing area where they have lost downside
momentum, can’t muster much to the upside but the volatility remains. These are the times to do nothing except
watch for follow through. To the upside,
the indices need to successfully challenge one or more resistance level (upper boundary
of their short term downtrend, their 100 day moving average or the first major Fibonacci
retracement level [circa S&P 1928]) before we can say anything about a
meaningful rebound. On the downside,
15842/1867 are major support. Any failed
test of those levels, the Averages are looking at a serious fall before they
find any support. Caution.
The
February performance of stocks after a down January (short):
Fundamental
Headlines
Yesterday’s
US economic was mixed: the November Case Shiller home price index rose more
than estimates and January consumer confidence reading was above expectations;
however, the January Markit services PMI was flat with December, the January
Richmond Fed manufacturing index fell markedly and month to date retail chain
store sales showed lower growth than the prior week.
Overseas,
the central bankers (China and the ECB) were out in force, yakking up more QE. This coming as investors anticipate some
dovish mewing (in particular, removing a March rate hike as a sure thing) from
the FOMC following its meeting today.
Given that a reservoir of adoration of QE seemingly remains, spirits
were likely lifted.
China pushes
back against Soros on currency issue (medium):
On the futility
of competitive devaluations (short):
The
other news item that bears mentioning were sounds from some OPEC members
suggesting an effort to stabilize the price of oil if non-OPEC members would
also comply.
That got the price of oil in rally mode; and because the price of oil and stock prices have been in lock step recently, this probably help improve investor sentiment.
That got the price of oil in rally mode; and because the price of oil and stock prices have been in lock step recently, this probably help improve investor sentiment.
Right
now there is a big short in oil
Oil prices in
perspective (short):
Bottom line: the
US and global economic dataflow remains discouraging while most central banks
remain convinced that more QE will solve that problem despite the fact that it
has done virtually nothing to date to improve the economic outlook anywhere. And if the talking heads are to be believed,
we are apt to see the Fed crawfishing on its own weak tightening effort
today. That may keep investors feeling
bullet proof but unless something changes dramatically, more QE will only exacerbate
the continuing mispricing and misallocation of assets.
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’.
Circularity
(short):
The
benefit of owning municipal bonds in the current environment (with more
disclaimers than you care to read). As
you know, muni bond ETF’s are a big holding in our ETF Portfolio. (medium):
More
on the thesis that the slowing global economy and declining oil prices are
pushing the liquidation of stocks (short):
Investing for Survival
How
taxes impact your portfolio’s performance:
Economics
This Week’s Data
The
November Case Shiller home price index was up 0.9% versus estimates of up 0.7%.
The
January Markit flash services PMI was flat with December (53.7).
January
consumer confidence came in at 98.0 versus consensus of 96.0.
The
January Richmond Fed manufacturing index was reported at 2 versus the December
reading of 6.
Weekly mortgage
applications rose 8.8% while purchase applications were up 5.0%.
Other
More
dismal news from the global shipping industry (short):
How
a skeptic views the economy (medium):
A
liberal economist’s retort to the former BIS comments of last week. (I linked
to it, but in short, he said the global banking system is in trouble); I agree
with much of what she says:
Politics
Domestic
Club for Growth
on Trump (short):
International War Against Radical
Islam
More
on Turkey acting as a middle man for ISIS oil (medium):
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