The Morning Call
2/5/16
Our number three granddaughter
will be two this weekend. We are
traveling to her home to celebrate. Back
on Monday.
The
Market
Technical
The indices
(DJIA 16416, S&P 1915) had a relatively calm session, ending up on the day. Volume declined; breadth improved; and
despite a tranquil day, volatility rose, remaining elevated.
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 {16818-17555}, [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 day moving average, now resistance, [b] below its
200 day moving average, now resistance [c] within a short term downtrend {1910-1999},
[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.
The long
Treasury rose, ending very near the upper boundary of its short term trading
range. The dollar continued to fall as investors become increasingly convinced
that the US economy is too weak for another Fed rate hike.
On another big volume day, GLD was up strong, closing
above the upper boundaries of both its [a] short term downtrend; if it remains
there through the close on today, the short term trend will reset to a trading
range and [b] intermediate term downtrend; if it remains there through the
close next Monday, the intermediate term will reset to a trading range. We still have to wait for our time and
distance discipline to confirm these breaks; but we clearly could be witnessing
a significant bottom in GLD.
Bottom line: yesterday was a bit calmer than Wednesday, leaving
the overall technical picture basically unchanged, i.e. the Averages remained
well above the lower boundaries of their intermediate term trading ranges and
well below the upper boundaries on their short term downtrends. In addition, they finished below a Fibonacci
retracement level (S&P 1928) and the S&P closed below the lower boundary
of a very short term uptrend. Net, net,
they ended within a fairly narrow trading range; but today I will be watching
to see if the S&P can trade back within that very short term uptrend.
The key at
present is patience and wait for a sustained move out of the trading range that
has existed since mid-January. As you
know, I would be a seller on any strength and a buyer at much lower levels.
GLD also remains
on my watch list. It is now challenging
both its short term and intermediate term downtrends. If successful, GLD should offer an attractive
buying opportunity.
What was behind
Wednesday rip in oil prices (medium)?
T.
Boone Pickens bails on oil (medium):
Fundamental
Headlines
This
week’s economic dataflow remains grim:
yesterday, weekly jobless claims rose more than anticipated, January
retail chain store sales were disappointing and fourth quarter productivity and
unit labor costs were truly bad. While there are two stats left to be reported today
(January nonfarm payrolls growth was well below forecast), they won’t really
influence the aggregate data. Because the
preponderance of this week’s stats to date have been, not just negative, but
really negative.
Particularly
noteworthy were December personal spending, today’s January nonfarm payrolls, January
retail store sales, both the ISM manufacturing and nonmanufacturing indices and
fourth quarter productivity and unit labor costs. At the risk of repeating myself, the economic
bulls are insisting the services sector aided by consumer spending will provide
the necessary energy to sustain growth (see above). That ain’t happenin’. In fact, the stats were so negative that
coming as they are in the nineteenth subpar week out of the last twenty three
that I think it time to lower our 2016 US economic growth forecast (again). I will
talk more about that next week.
Overseas,
it was the same old song. Eurozone
officials lowered both their 2016 inflation and growth projections while the
Bank of England lowered its 2016 and 2017 growth forecasts for the UK. Joining in harmony, Draghi made another set
of comments trumpeting his determination not to let EU economic conditions to
get out of control on the downside.
***overnight,
UK January car production hit a ten year high.
Bottom line: the
economic bulls took another hit yesterday from sources both here (the
disappointing results from January retail chain store sales and the fourth
quarter nonfarm productivity and unit
labor cost numbers) and abroad. And as
you might expect, the central bankers (Draghi, yesterday) kept up their extreme
version of easy money mantra drumbeat---even though this policy hasn’t, isn’t
and likely won’t ever work. Indeed, as I
keep documenting in the pages, not only has it not worked but it has had a negative
impact on economic activity.
Whether these
yahoos ever figure that out is anyone’s guess.
But what we don’t have to guess
about is the declining level of global economic activity, the problems stacking
up on global bank balance sheets and that QE hasn’t done diddily to assuage
either. So as investors, we are left
with equity prices well overvalued even if the economy was just peachy.
Speaking of the
Market, the bulls’ argument has been that (1) most Market declines are preceded
or coincident with a recession, (2) most recessions result from a Fed
tightening and (3) the Fed tightening to date has been minimal and may not
continue. Hence, no bear Market. Well, news flash. Fed policy has and is causing a recession;
only it is not tightening. It is the
mispricing and misallocation of assets that is the culprit. So scratch (3) above and start focusing on (1)
above.
I am not
suggesting that investors run for the hills.
I am suggesting that in this 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’.
It’s
the earnings, stupid (medium):
Investing for Survival
Everyone
is a closet technician:
Economics
This Week’s Data
January
retail chain store sales were weak.
January
nonfarm payrolls grew 151,000 jobs versus expectations of 188,000; the December
number was revised from up 292,000 to up 262,000; confusingly, unemployment dropped
from 5.0% in December to 4.9% in January.
The
December US trade deficit came in at $43.4 billion versus estimates of $43.0
billion.
Other
Next
week’s most important datapoint may not be from the US (medium):
Here’s the opening shot (short):
Toxic
loans weigh on global growth (medium):
Counterpoint
(medium):
Politics
Domestic
An indication of
the problems in our education system (medium):
Cruz’s foreign
policy (medium):
More government
incompetence (short):
Obama proposes a
new $10 ‘fee’ on a barrel of oil (medium):
International War Against Radical
Islam
Saudi
Arabia ready to send ground troops into Syria (medium):
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