The Morning Call
2/10/16
The
Market
Technical
The indices
(DJIA 16014, S&P 1852) closed down slightly yesterday but the volatility
continued and breadth was poor.
The
Dow ended [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 {16802-17555}, [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] below the lower boundary of its
short term downtrend {1902-1989}, [d] below the lower boundary of its
intermediate term trading range {1867-2134} for the second day; if it remains
there through the close on Thursday, it will reset to a downtrend}, [e] in a
long term uptrend {800-2161} and [f]
still within a series of lower highs.
The long
Treasury inched higher, ending above the upper boundary of its short term
trading range; if it remains there through the close today, it will reset to an
uptrend.
On another huge volume day, GLD was down slightly,
closing [a] within a short term trading range and very near its upper boundary and
[b] within an intermediate term trading range.
Bottom line: the S&P continues its challenge of the
lower boundary of its intermediate term trading range (though the Dow remains
above its comparable level), while the long Treasury and gold held their recent
gains. At the moment, the most important thing to watch is S&P 1867 and the
comparable level in the Dow. These are
the technical lines in the sand due to the lack of any near in visible support.
The long Treasury
is challenging the upper boundary of its short term trading range; and the
upper boundary of its intermediate term trading range is not that far away. GLD has blown out its short and intermediate
term downtrends decisively on monstrous volume and is now about to challenge
the upper boundary of its newly reset short term trading range. Our Portfolios
will likely establish a position in gold on any pullback.
The
current decline in perspective (short):
Fundamental
Headlines
Yesterday’s
US economic stats included: the January small business optimism index which
declined, month to date retail chain store sales growth which was lower than in
the prior week and December wholesale inventories (in line) and sales (down
more than inventories). No letup
here. Indeed, it appears that investors
and the chattering class are now starting to figure out that all is not well
Mudville. Once the realization of
declining economic activity/corporate profits actually takes root (which
apparently it is now only beginning to do), stock prices are not likely to do
well.
Overseas,
December German industrial production fell; and EU sovereign risk spreads
widen. I have spent a lot of time
discussing the risks associated with overleveraged bank balance sheets. And more recently focused on the European
banks. Here is a good summary of the
problem (medium and a must read):
Bottom line: the
economy continues to display weakness and it seems to now be entering the
consciousness of all the dreamweavers.
The global economy isn’t providing any support; and indeed, it has
weakened to the point that credit default spreads are widening in both the
sovereign and bank securities. This is just
another manifestation of the risk off trade that is spreading through multiple
markets. It is not a plus for stock
prices.
Today, we will
be treated to another self-justifying, intellectually shallow presentation from
the Fed chairperson herself as she begins two days of congressional
testimony. Given the whackage taking
place in the stock market and the flood of lousy data, I can’t imagine Yellen
not sounding dovish with regard to a potential March rate hike. On the other hand, who knows how much
pressure may be exerted on her from the white house given the Alice in
Wonderland employment narrative peddled by Obama last Friday. In either case,
we will likely also be treated to another high volatility day.
Just to be
clear, I hope that the Fed sticks to its monetary normalization agenda, tardy
though it may be. I believe that until
monetary policy returns to normal both the economy and Market will
underperform.
I am not
suggesting that investors run for the hills.
I am suggesting that in any rally that from current levels (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’.
The
latest from Doug Kass (medium):
The
truth about the stock market (a bit long but worth the read):
Want
to know why the stock market is declining? It’s simple (medium):
Wall
Street strategist cutting the estimates for year-end S&P value (medium):
When
easy money doesn’t help: the latest from John Hussman (medium):
Investing for Survival
Plan
your retirement as though you will live to 90.
Economics
This Week’s Data
Growth
in month to date retail chain store sales fell (again) relative to the prior
week.
December
wholesale inventories declined 0.1%, in line; however, wholesale sales fell
0.3%.
Weekly mortgage
applications rose 9.3% while purchase applications were up 0.2%.
Other
The
track record of Japanese QE and negative interest rates (medium and a must
read):
My
favorite optimist unwittingly (apparently) symbolizes to Einstein’s definition
of insanity (medium):
Politics
Domestic
Wednesday
morning humor: must watch presentation of political correctness (10 minute
video):
International War Against Radical
Islam
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