The Morning Call
3/15/16
The
Market
Technical
The indices
(DJIA 17229, S&P 2019) turned in a mixed day (Dow up, S&P down) on low
volume. Stocks remained overbought. The VIX rose and looks like it could have
made a double bottom---perhaps a sign of impending weakness.
The Dow closed
[a] above its 100 day moving average for the second day, now resistance; if it
remains there through the close today, it will revert to support, [b] above its
200 day moving average for the second day, now resistance; if it remains there
through the close on Wednesday, it will revert to support, [c] above the lower
boundary of a short term downtrend {16655-17386}, [c] in an intermediate term
trading range {15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and has
made a third higher high and is working on a fourth.
The S&P
finished [a] above its 100 day moving average for a second day, now resistance;
if it remains there through the close today, it will revert to support, [b] above
its 200 day moving average for the second day, now resistance; if it remains
there through the close on Wednesday, it will revert to support, [c] within a
short term trading range {1867-2104}, [d] in an intermediate term trading range
{1867-2134}, [e] in a long term uptrend {800-2161} and [f] has made a second higher
high and is working on a third.
The long
Treasury lifted a bit. However, it has
developed a very short term downtrend and busted through a key Fibonacci
retracement level. Since the global
central banks are cutting rates (higher bond prices), this pin action only makes
sense if investors are in a risk-on mood (sell safety, buy risk).
GLD got whacked,
finishing below the lower boundary of its very short term uptrend. I thought that some consolidation after a
very sharp rise was likely. But it remains
well above the lower boundary of its short term uptrend, as well as its 100
moving average.
Bottom line: yesterday’s
pin action was likely just a pause as investors await a big data week as well
as meetings by both the Bank of Japan and the Fed. Still the breaks of both the 100 and 200 day
moving averages remain valid, so the ball stays in the bulls’ court.
This Friday’s
close will likely be much different than Monday’s. I just have no idea in which direction. That said, I still believe that the bull
market is likely over and that mean reversion is the principal risk right now.
Fundamental
Headlines
No
US economic data yesterday. Overseas,
February Chinese factory output and retail sales were below estimates; while
the government said that it was going to expand the funds dedicated to
investment in fixed assets---more capacity, just what the doctor ordered. The Japanese reported February Japanese
machine orders surged.
***overnight,
February EU industrial production came in better than forecast; the Bank of
China reported that it was considering a tax on currency transactions---a form
of capital control.
However
as I noted above, investors seemed to be sitting on their hands awaiting a big
US economic data week as well as two central bank meetings. And yesterday’s flat pin action suggests that
a low level of concern.
Are
investors betting too much on the central banks (medium)?
Part 2 (medium):
Bottom
line: Draghi did his part last
week. Now it is the turn of the Fed and
the Bank of Japan to keep the QE fairy tale alive. If you believe Hilsenrath’s prediction last
week, then the Fed will give us another ‘on the one hand, on the other hand’
dialectic and do nothing. Anticipating what
the Bank of Japan does is a crapshoot.
These guys have to date shown no hesitancy to double, triple or
quadruple down on QE; so I see no reason why they wouldn’t take QE/negative
interest rates to new levels of lunacy.
***overnight,
the Bank of Japan again surprised by doing nothing. It declined to comment on the likelihood or necessity
of further rate cuts into negative territory (that’s good) but stayed with its
projections of accelerated monetary growth (that’s not good) and lower its
assumption for economic growth.
In my opinion,
the current rally represents an excellent opportunity to raise cash reserves by
selling either a portion of your profitable investments and/or sell your
losers.
More on corporate
buybacks. I pose the question, why would
you invest in a company which is buying back its own stock at or near its all-time
high instead of investing for future earnings growth? (medium):
The latest from John
Hussman (medium):
The high yield debt
market still has problems (medium):
Investing for Survival
The
problem with trying to quantify risk.
News on Stocks in Our Portfolios
Revenue of $281.8M (+13.7% Y/Y) misses
by $1.19M.
Economics
This Week’s Data
February
PPI fell 0.2%, in line; ex food and energy, it was flat versus expectations of
+0.1%.
February
retail sales fell 0.1%, in line, however, January sales were revised from +0.2%
to -0.4%; ex autos and gas, they rose +0.3%, also in line.
The
March NY Fed manufacturing index came in at .62 versus estimates of -11.25.
Other
Has
oil hit a near term price peak? (short):
Politics
Domestic
International War Against Radical
Islam
Putin
orders withdrawal of Russian troops from Syria (medium):
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