The Morning Call
1/8/16
The
Market
Technical
Another rough
day for the indices (DJIA 16514, S&P 1943).
The Dow ended [a] below its 100 moving average, which represents support;
but if it remains there through the close today, it will revert to resistance,
[b] below its 200 day moving average, now resistance, [c] below the lower boundary
of its short term trading range {16919-18148}; if it remains there through the
close today, it will reset to a downtrend, [c] in an intermediate term trading
range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and has now
made yet another lower high.
The S&P
finished [a] below its 100 moving average for the third day, now resistance, [b] below its 200 day moving average, now
resistance, [c] below the lower boundary of its short term trading range
{2016-2104}; if it remains there through the close today, it will reset to a downtrend,
[d] below the lower boundary of its
intermediate term uptrend {1998-2791}; if it remains there through the close
next Monday, it will reset to a trading range, [e] a long term uptrend
{800-2161}, [f] and in a very short term trend of lower highs.
Volume rose; breadth
declined with the flow of funds indicator now in a downtrend. The VIX (25) was up 21%, ending [a] above its
100 day moving average, now resistance; if it remains there through the close today,
it will revert to support, [b] within short term, intermediate term and long
term trading ranges.
The long
Treasury rose, closing above its 100 day moving average, now resistance; but if
it remains there through the close today, it will revert to support. It remains within very short term, short term
and intermediate term trading ranges.
GLD was up 1.4%. While it is in a very short term uptrend, it still
finished [a] below its 100 day moving average, now resistance and [b] within
short, intermediate and long term downtrends.
Bottom line: with
the continuing follow through to the downside, it is getting really ugly out
there---even though stocks are now in oversold territory. So a bounce would not be surprising. However, under our time and distance
discipline, the magnitude of the breaks are so significant that virtually all
of the challenges are being confirmed by the distance element of our discipline. I didn’t confirm them last night simply
because in the absence of a dramatic rally today, most would be confirmed at
the close anyway.
I would
reiterate my comment from yesterday’s Morning Call: if these breaks are
confirmed there is no discernable support until the Averages reach the
15842/1867 level.
Fundamental
Headlines
Only
one US datapoint yesterday: weekly jobless claims fell less than
anticipated---which was meaningless versus what went on overseas:
(1) the
Chinese yuan continued to slide as did stocks---which tripped circuit breakers
in the first 30 minutes of trading.
Making today’s open there more interesting, Chinese officials lifted those
circuit breakers. Chinese events seem to
be the most important factor weighing on the Markets [a] because the weakness
in the yuan suggests a weaker economy than has to date been anticipated and [b]
the back and forth on the circuit breaker issue leaves many feeling that
Chinese officials have lost control of their Markets,
China learning costly lessons (medium):
Identifying the
causes of the current Chinese heartburn (medium and a must read):
More yuan depreciation ahead?
(short)
(2) the Eurozone
reported a number of upbeat economic stats: economic confidence, business
climate index, industrial confidence and unemployment; retail sales were less
than anticipated. While a plus, [a] it
is an isolated set of stats in what has been a dismal couple of months of EU
data and [b] clearly at the moment, no one cares,
***overnight,
December German industrial production declined.
(3) Iran
accused Saudi Arabia of bombing its embassy in Yemen. While this is a further negative,
at the moment, no one seems to care---which could be a big mistake,
(4) The
World Bank lowered its 2016 global economic growth forecast [ZZZ}.
Bottom line: the Chinese yuan and stock market seem to have
become the locus of all things negative.
Unfortunately, there are other negatives besides China---like the US
economy, like global monetary policy in disarray, like declining global trade,
like plunging commodity prices, like increasing chaos in the Middle East and
like an attack on western civilization by radical Islam.
The BIS takes
aim at central bank monetary policy (medium):
I am not
suggesting that investors run for the hills.
I am suggesting that (1) they use the Market strength to take some
profits in winners and/or eliminating investments that have been a
disappointment and (2) they lose the notion of ‘buying the dips’.
Have
we run out of greater fools? (medium):
Investing for Survival
The
difficulty in outperforming an index fund.
News on Stocks in Our Portfolios
Economics
This Week’s Data
December
nonfarm payrolls rose 40,000 versus estimates of a decline of 11,000.
Other
Update
on the Baltic Dry Index (short):
Great
article by Bill Gross on the inevitable economics of demographics (medium and a
must read):
Politics
Domestic
Quote of the day
(short):
International War Against Radical
Islam
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