The Morning Call
1/15/16
The
Market
Technical
The indices
(DJIA 16370, S&P 1921) finally got the bounce out of oversold territory
yesterday. The Dow closed [a] below its
100 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] back above its August 2015 low and [f] and still
within a series of lower highs.
The S&P
finished [a] below its 100 moving average, now resistance, [b] below its 200
day moving average, now resistance [c] below the lower boundary of a short term
downtrend {1940-2030}, [d] in an intermediate term trading range {1867-2134},
[e] a long term uptrend {800-2161} [f] back above its August 2015 low and [g]
still within a series of lower highs.
Volume was flat;
breadth improved. The VIX dropped 5% (a
lot less than I would have expected on a big up day), ending [a] above its 100
day moving average, now support, [b] in short term, intermediate term and long
term trading ranges.
The long
Treasury was down, closing above its 100 day moving average, now support and
within very short term, short term and intermediate term trading ranges.
GLD fell ending
[a] below its 100 day moving average, now resistance and [b] within short,
intermediate and long term downtrends.
Bottom line: the
Averages finally got the bounce out of oversold territory that I have been
expecting. The key now is follow through
and whether they can remain above their August 2015 lows. On the plus side, they remain oversold. On the other hand, they were not able to rise
above several very short term resistance levels. Whatever occurs, it seems
likely that they will at least challenge their August lows (15842/1867).
Fundamental
Headlines
Yesterday’s
US economic news consisted of two secondary indicators: weekly jobless claims
and December import/export prices---and both were negative. Doesn’t help; but today we get six economic reports---as
many as have already been released this week and include two primary
indicators: December retail sales and industrial production. So whether this week’s cumulative data are
positive or negative will depend heavily on those results---and so far, they
are not good (see below).
Overseas,
Japanese machinery orders declined precipitously and the yuan resumed its
decline.
***overnight,
December Chinese bank loans grew much less than anticipated and a Bank of Japan
official said that any further QEInfinity would only cause problems.
Nonetheless,
what received most investor attention were comments from St. Louis Fed chief
Bullard in which he said that commodities (especially oil) were negatively
impacting the Fed’s inflation expectations
(I hate it when that happens).
Rightly or wrongly, it seems that investors are interpreting this as a
walk back of the current happy horses**t economic narrative of the Fed and raised
the hope that the Fed might be re-thinking its recent rate hike. Gosh only knows that nothing has brought out
the bulls in the past like an easy Fed.
And it could well be the case this time---especially if I am wrong about
the potential loss of confidence in the Fed and investors ignore the fact that
the Fed has once again been wrong.
I found it odd
that Bullard seemingly forgot to mention the Fed’s role in driving inflation
(lower oil/commodity prices) down, to wit, by creating a surfeit of cheap money,
it encouraged a rush to invest in the debt of low quality oil/mining companies
(chasing yield/asset misallocation) which then contributed to oversupply, hence
lower prices, hence low inflation.
Don’t get me
wrong. I love the geopolitical fact that
the US had reached energy independence.
But it is a bit disingenuous of the Fed to whine about low inflation (oil
prices) when it had a contributing role in creating it. And even more amazing, its solution is to
consider….drumroll….keeping plenty of money available at low prices. Sooner or later, investors are going to
figure that out.
Bottom line: the
big question in my mind is, how much of yesterday’s rally was simply a natural
rebound from a grossly oversold condition or an indication that investors still
believe that the Fed can (and will) save the Market? You notice I didn’t say save the economy. As we all know, save for QE1, the Fed’s
QEInfinity did little to juice the economy; indeed, it likely hampered it. And as I noted above, it is a primary cause
of that very inflation problem Bullard was bemoaning. In short, the Fed has been, is and will continue
to be the problem not the solution. Thus
the follow up question to the second part of the above, if the Fed does walk
back its tightening and the economy continues to deteriorate, what happens to
investor confidence?
My point here is
that the Fed has backed itself into a corner from which there is no easy escape
even if investors are foolish enough to fall for the assumed omnipotence of Fed
policy one last time. There is nothing
the Fed can do to stop the decline in oil/commodity prices (inflation) as long
as supply overwhelms demand---which by Bullard’s own admission is exactly what
is occurring, at least partially as a result of QEII-IV. At some point, it becomes obvious that QE
hasn’t, isn’t and won’t work and all the Fed has really done is encourage the
misallocation and mispricing 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’.
Dividends
and stock prices (short):
Investing for Survival
Do
years of flat Market performance tell us anything about the coming year’s
performance? (medium):
News on Stocks in Our Portfolios
Fastenal:
Q4 EPS of $0.39 misses by $0.01.
Revenue of $922.79M
(-0.4% Y/Y) in-line.
BlackRock: Q4 EPS of $4.75 misses
by $0.06.
Revenue of $2.86B (+2.9% Y/Y) beats
by $20M
Economics
This Week’s Data
December
PPI came in at -0.1 versus forecasts of 0.0.
December
retail sales were reported down 0.1% versus expectations of being flat; ex
autos, they were -0.1% versus estimates of +0.2%.
The
January NY Fed manufacturing index reading was -19.37 versus consensus of -4.0.
Other
Explaining
income inequality (medium and a must read):
Politics
Domestic
International War Against Radical
Islam
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