The Morning Call
1/29/16
The
Market
Technical
The indices
(DJIA 16069, S&P 1893) made yet another big move yesterday, this time up. 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 {16841-17585}, [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 {1918-2008}, [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 lower
(the Averages back in the pattern of low volume advance and high volume
declines); breadth was much improved.
The VIX was down 3%, ending [a] above its 100 day moving average, now
support {though the average is trending down, which would be a plus for stocks}
and [b] in short term, intermediate term and long term trading ranges.
The long
Treasury was up on good volume, finishing above its 100 day moving average, now
support and within short term and intermediate term trading ranges.
GLD declined,
but still ended [a] above its 100 day moving average for the third day,
reverting from resistance to support {however, the average is trending down, which
is not supportive of this reversion} and [b] within short, intermediate and
long term downtrends.
Bottom line: the
indices continued a high volatility see saw action but within in a narrow range:
‘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.’
NYSE
margin debt declines further (medium):
Fundamental
Headlines
US
economic stats turned negative again yesterday:
weekly jobless claims fell more than expected; however, December pending
home sales rose, the January Kansas City Fed manufacturing index and December
durable goods orders were all disappointing.
Overseas, IMF
and World Bank officials headed for Azerbaijan to discuss an emergency loan
package in what could be the first bailout stemming from lower oil prices. On a more positive note, rumors flew that
OPEC and non OPEC members maybe planning a meeting to discuss production
cuts. Away from oil related news, the UK
fourth quarter GDP was up but at the slowest annual rate in three years, EU
economic confidence was the lowest in five months and China continued to inject
liquidity into its financial system in an attempt to slow declining stock
prices.
***overnight,
both France and Spain posted better than expected 2015 GDP growth. In addition, the rumored OPEC/non OPEC meeting
(see above) to discuss production cuts turned out to be just that---a
rumor. And finally, the Bank of Japan
stunned the world, introducing a negative interest rate policy (can you say
currency war?).
Bottom line: with
another FOMC clown show out of the way, attention can get back to the
numbers---and they weren’t that encouraging.
In the US, this week’s economic dataflow has gone from slightly positive
to slightly negative. However, we will
see a number of meaningful stats released today; and they will likely determine
how this week’s data in aggregate performs.
Whatever the outcome, the trend of the last five months will remain
negative.
Overseas, the
stats were negative; and that has been going on months and months. China
continues to pump money into the system to stem the carnage in its stock market. It also fired its head of government statistics,
aka liar in chief. I am not sure what
that means. Hopefully, it is a sign that
the Chinese government is prepared to get honest about its economy with the
rest of the world---‘hopefully’ being the operative word.
The central
banks continue to attempt to assuage nervous Market under guise of helping their
economies. At the moment, they seem to
be failing on both counts. As you know,
my opinion is that as long as QE is their strategy that failure will persist.
With regard to
oil, whose price action has been having some impact on stock prices lately, we
got good news and bad news yesterday. The
bad news is that falling oil prices may be claiming their sovereign default
(Azerbaijan); the good news is that those declining oil prices may be hurting
the producers so much (or not) that production cuts could be under
consideration.
Finally, stock
prices are overvalued even in the absence of all of the above. 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’.
Data
on the current earnings season (short):
Economics
This Week’s Data
December
pending home sales rose 0.1% versus expectations of up 0.8% while the November
report was revised down.
The
January Kansas City Fed manufacturing index came in at -9, flat with a
downwardly revised December report.
Fourth
quarter GDP rose 0.7% versus estimates of up 0.9%.
The
November US trade deficit was $61.5 billion versus forecast of $60.1 billion.
Other
An
interview with Martin Feldstein (medium):
Manufacturing
matters (medium and a must read):
China’s
debt to GDP ratio is getting out of hand (medium):
Politics
Domestic
International War Against Radical
Islam
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