The Morning Call
1/12/16
The
Market
Technical
The indices
(DJIA 16398, S&P 1923) inched higher yesterday. However, the Dow ended [a] below its 100
moving average, now resistance, [b] below its 200 day moving average, now resistance,
[c] within a short term downtrend {16934-17667}, [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 {1949-2039},
[d] below the lower boundary of an intermediate term uptrend {2000-2990} for
the fourth day; it resets to a trading
range {1867-2134}, [e] a long term uptrend {800-2161} and [f] still within a
series of lower highs.
January option
expiration week (short):
Volume declined;
breadth improved slightly. The VIX was down
10%, ending [a] above its 100 day moving average, now support, [b] in a short
term, intermediate term and long term trading ranges.
And:
And:
The long
Treasury fell 1%, 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: the
S&P confirmed the challenge of its intermediate term uptrend. The next support levels for the Averages are
now 15842/1867. Very short term stocks
are oversold, so a bounce extending the yesterday’s paltry advance seems
likely. Nonetheless, a challenge of
15842/1867 also seems likely. Let’s hope
those support levels hold, because the next visible support is circa (14256/1576).
Fundamental
Headlines
No
data either here or abroad yesterday. In
fact, there will be few US economic datapoints this week. On the other hand, yesterday marked the
beginning of fourth quarter earnings season---which is likely to be another bummer
(third in a row). I am not sure how much of that is priced in;
but, at the least, I suspect there is little good news coming on that score.
Overseas,
the news was the continuing decline in the Chinese stock market but stabilization
in the currency market. Based on the
performance in the US markets, I assume this means that investors are more focused
on the yuan than on stock prices. That
said, many of the China experts that I listen to suggest that the yuan is still
10% overvalued, so that does not bode well for US stock prices.
Mohamed
El Erian on China’s economic problem (medium):
The
current lack of transparency (medium):
***overnight,
December UK industrial production fell, December Japanese consumer confidence
rose slightly and 2015 Chinese auto sales were up 4.7%---the slowest rate of
growth since 2012.
Bottom line: investors got a rest from the carnage yesterday
and that could extended based on how oversold the Market is at present. However, this interlude may be just a
function of the absence of news flow. Clearly
that is not going to last. Given the
trend in poor economic stats here and abroad, the recent break in multiple
support levels and the potential for further (1) declines in the yuan, (2) negative
earnings surprises and (3) explosive developments in the Middle East coupled with
the still very generous valuation of the indices, a further decline in those
Averages seems reasonable.
As I noted last
week, the average stock is already down 20%, so the downside for the average
stock is almost surely less than that of the indices. That said, our Buy Lists contain only a few
names; typically, as stocks approach a bottom those Buy Lists are highly
populated. So I think that it is still too
soon to be buying. Indeed, as part of
our strategy, I have suggested that ‘buying the dip’ is likely dead.
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 eliminating investments
that have been a disappointment and (2) they lose the notion of ‘buying the
dips’.
The
latest from John Hussman (medium):
Economics
This Week’s Data
The
December small business optimism index came in at 95.2 versus expectations of
95.0.
Other
Are
our ex-energy trade deficits a tell-tale sign? (medium):
Nothing
is ‘natural’ about the economy (short):
Politics
Domestic
Quote of the day
(short):
International War Against Radical
Islam
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