The Morning Call
2/25/16
The
Market
Technical
The indices
(DJIA 16484, S&P 1929) had a roller coaster ride, selling off dramatically
at the open and then recovering to end on a modest plus note. Breadth was mixed and volume continued to
fall. The VIX declined slightly, leaving
it above the lower boundary of a very short term uptrend as well as its 100 day
moving average.
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 {16725-17471}, [c] above
the lower boundary of its intermediate term trading range {15842-18295}, [d] in
a long term uptrend {5471-19343}, [e] and, maddeningly, closed right on the
level of that former lower high Monday.
The S&P
finished [a] below its 100 day moving average, now resistance, [b] below its
200 day moving average, now resistance [c] above the lower boundary of its
short term downtrend {1878-1964}, [d] within its intermediate term trading
range {1867-2134}, [e] in a long term uptrend {800-2161}, [f] still within a
series of lower highs and [g] right on the 1928 Fibonacci retracement level.
The long
Treasury fell, ending [a] within its short and intermediate term trading ranges,
[b] well above its upward trending 100 day moving average and [c] slightly
below the lower boundary of a very short term uptrend.
GLD was up, remaining
within very short term and short term uptrends as well as above an upward
trending 100 day moving average.
Bottom
line: the maxim is that the Market does
its best to frustrate the most people---and it is working with me right
now. Within the context of all the
longer term trends that I list every day, the most sensible technical comment
right now is that the bulls and bears are battling it out in a very short term
trading range (15448-16518, 1812-1948) and clearly closed yesterday nearest the
upper end of that range. I could
reiterate a lot of ‘on the one hand/on the other hand’ factors; but they
ultimately will only mean something within the context of which way the Market
breaks. Follow through.
We
are still in a downtrend (medium):
Fundamental
Headlines
Yesterday’s
economic news was a bit disappointing: while purchase applications rose,
mortgage applications (granted less important) declined, the February flash
services PMI plunged as did January new home sales. A
couple of notes:
(1)
as I have pointed out before, the economic bulls are
hanging their case on the service sector remaining strong and basically ‘carrying’
the economy through the current malaise.
This is now the second poor service sector reading of late---the other
being the ISM nonmanufacturing index. I am not saying the economic bulls have now
been discredited; I am saying that the time is getting closer,
(2)
to be sure, new home sales are only about one tenth the
magnitude of existing home sales which were reported up earlier this week. However, new home sales have a much more
powerful multiplier effect on the economy because they represent production not
just resale.
Other news
included:
(1)
the Saudi oil minister ruling out oil production cuts
anytime soon. This on the back of the
Iran calling a production freeze a joke.
That doesn’t mean that oil prices still can’t go up. But with flat to rising supply and falling
demand, I can’t come up with the scenario that results in it,
***overnight, Whiting Petroleum suspends fracking
operations. Time for a Saudi victory lap?
(medium):
(2)
all three credit rating agencies lowered Brazil’s
rating to junk. That is not going to
help an already faltering economy finance itself out of trouble. Nor will it help the balance sheet strength
of banks that own Brazilian government bonds,
(3)
JP Morgan added $500 million to its loan loss
reserves. However small this may be
relative to the bank’s balance sheet, it directionally is all wrong and
supports the notion that risks still remain to the stability of the global financial
system.
FDIC warns of
signs of growing credit risk (short and a must read):
***overnight,
January EU inflation was reported less than expected.
Bottom line: there is nothing in the current data, here or
abroad, that suggests that the global economy or US corporate earnings will not
continue to be weak. And there is
nothing to suggest a recovery in oil prices to which stock prices have been
closely tied for the last four months; though I could buy into a stabilization scenario
near current levels. (see above) That may result in a sigh of relief by some
Market participants; but ultimately it will do nothing the help profits in the
energy or financial sectors which have been the principal victims of low oil
prices.
On the other
hand, the G20, the ECB and the Fed are all meeting in the next couple of weeks;
and I can see investors starting to wish/guess/hope/prepare for more central
bank ease. In my opinion, more of the
same misguided Keynesian claptrap will only make economic conditions worse. But given the past relationship between
QEInfinity and investor jigginess, hope will likely continue to spring eternal. If it
does, it makes sense to use any rebound to take some profits in winners that
have held up during recent decline.
***overnight,
the IMF called for ‘bold action’ from G20 to support demand growth. St. Louis Fed chair Bullard, a long time
hawk, repeated that it would be unwise to continue to raise rates.
The
latest from Citi---we have a problem (medium):
Investing for Survival
Will
you be the gambler or the house?
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
February flash services PMI came in at 49.8 versus estimates of 53.7.
January
new home sales fell 9% versus forecasts of down 4%.
January
durable goods orders rose 4.9% versus forecasts of up 2.5%
Weekly
jobless claims rose 10,000 versus consensus of up 8,000.
Other
You
are richer than a 19th century billionaire (short and a must read):
Politics
Domestic
International War Against Radical
Islam
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