Wednesday, January 13, 2016

The Morning Call---An oversold rally

The Morning Call

1/13/16

The Market
         
    Technical

After a roller coaster ride, the indices (DJIA 16516, S&P 1938) ended with another decent day.   Still, the Dow closed [a] below its 100 moving average, now resistance, [b] below its 200 day moving average, now resistance, [c] within a short term downtrend {16927-17665}, [c] in 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 moving average, now resistance, [b] below its 200 day moving average, now resistance [c] in a short term downtrend {1946-2034}, [d] in an intermediate term uptrend trading range {1867-2134}, [e] a long term uptrend {800-2161} and [f] still within a series of lower highs. 

Volume declined; breadth improved.  The VIX was down 8%, ending [a] above its 100 day moving average, now support, [b] in a short term, intermediate term and long term trading ranges. 

The long Treasury jumped 1.25%, closing above its 100 day moving average, now support and within very short term, short term and intermediate term trading ranges.

GLD declined ending [a] below its 100 day moving average, now resistance and [b] within short, intermediate and long term downtrends. 

Bottom line: I noted yesterday that the Averages were oversold, so a bounce was likely---and that seems to be what is happening.  That said, both indices remain below the lower boundaries of their short term downtrends and neither is even close to their prior support levels.  In other words, prices have a lot of territory to regain before there is any reason to assume this up move is anything more than a rebound from an oversold condition.
           
    Fundamental

       Headlines

            There were two secondary stats reported yesterday: the December small business optimism was up slightly while month to date retail chain store sales growth slowed from the prior week.

            Overseas, the data flow remains disappointing: December UK industrial production fell and 2015 Chinese auto sales grew at the slowest rate of growth in three years.   There was some good news---December Japanese consumer confidence rose slightly.  But the point is---no improvement seen in the global economy.

            ***overnight, December Chinese exports rose 2.3% while imports fell 4%.

Bottom line: the economic numbers didn’t get any better either here or abroad, oil prices continue to fall and there was another terrorist bombing in Turkey.  In my opinion, that is not a back drop conducive to higher stock prices.  Of course, I have already observed that the average stock has been hammered and the Averages in no way mirror that performance.  So at least some of the above is reflected in the price of the average stock. 

The question is, does the average stock ‘price in’ all of the above.  My opinion is ‘no’; but I have to be open to the possibility.  That said, as long as I hear and read about how great the economy is, how the Fed has nailed the transition to tighter money and how misleading recent earnings reports have been, I will remain very skeptical.

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’.

            Thoughts on the workability of QE (short):

            2008 has already happened in the energy space (short):

            The problem with ‘adjusted EBITDA’ (short):

     
Economics

   This Week’s Data

            Month to date retail chain store sales grew less than in the prior week.

            Reversing last week’s huge declines, weekly mortgage applications rose 21.3% while purchase applications were up 18%.

   Other

            Update on the Baltic Dry Index (short):

Politics

  Domestic

Another example why neither party deserves support (medium):

Quote of the day (short):

  International War Against Radical Islam

            More on Saudi Arabia and Turkey (medium):






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