The Morning Call
3/17/16
The
Market
Technical
The indices
(DJIA 17325, S&P 2027) had a good Fed easy money day on better volume and
breadth. The VIX fell 11%, resetting to a
very short term downtrend and nearing the lower boundary of its short term
trading range.
The Dow closed
[a] above its 100 day moving average, now support, [b] above its 200 day moving
average for the fourth day, thereby reverting 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, now support, [b] back above its 200 day moving average, now
resistance; if it remains there through the close next Monday, 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 continued to drift higher, ending right on a key Fibonacci retracement
level but remaining in a very short term downtrend. It was a very modest performance versus other
sectors of the fixed income market, indicating risk-on and not surprising given
the stock markets performance.
GLD soared 2 ¼%
on good volume and closing back above the lower boundary of a very short term
uptrend which it broke Tuesday. I am
putting that call on hold and awaiting follow through in either direction. In the meantime, it remains well above the
lower boundary of its short term uptrend, as well as its 100 moving
average.
World’s second
largest reinsurer buys gold (medium and a must read):
Bottom line: investors
clearly remain intoxicated by a dovish Fed.
As a result, the indices are almost done confirming the break above their
100 and 200 day moving averages. Hence, I
have to assume momentum has reignited to the upside. The next targets are the upper boundaries of
the indices’ intermediate term trading ranges which are within a couple of
percent from current price levels. So I am
also assuming that they are highly likely to be challenged. That said, the technicals appear overextended
at yesterday’s close; two to three percent higher will only make them more so.
I still believe that the bull market is likely
over and that mean reversion is the principal risk right now.
The
latest from Doug Kass (medium):
Fundamental
Headlines
Yesterday’s
economic data mirrored Tuesday’s quantitative and qualitative characteristics:
weekly mortgage applications fell but purchase application finished slightly in
the positive, February CPI was less than anticipated but ex food and energy, it
was hotter, February housing starts were strong but building permits were weak
and February industrial production was disappointing as was capacity
utilization. Today is yet another big
data day though it needs to be very upbeat to take this week out of the lackluster
column.
There
was no data from overseas. But OPEC
decided that, since it worked so well before, it would try jerking the world
off again by announcing yet another OPEC meeting, this time in Qatar on April
17---but without the participation of Iran.
Maybe I am being too cynical, but I would not be chasing energy issues
higher on anything this group had to say.
***overseas,
the Swiss National Bank kept its key rates unchanged and lowered its inflation
forecast; the Bank of Norway lowered its key rate further and indicated that
they could soon move into negative territory; February Japanese exports fell 4%
year over year while imports declined 14.2%
Of
course, the big news of the day was the wrap up of the two day Fed meeting. In the accompanying statement, it (1) left
rates unchanged, (2) lowered its expectations of four rate hikes in 2016 to two
and (3) lowered its expectations for future levels of Fed Funds rate. Net, net, pretty dovish. Its rationale for this was (1) the US
economy is fine, though it lowered its growth projections slightly, (2) but it
is increasingly worried about the global economy and (3) it is less concerned
about inflation.
Hilsenrath’s
parsing (medium):
Focusing
on the last point, let’s remember that just this week, core inflation picked
up. So if anything, shouldn’t the Fed’s reaction
be more concerned not less? The answer
is yes. So what is happening is either (1)
Mauldin is right [i.e. the Fed will be more rather than less dovish as a result
of the Chinese threat to devalue the yuan] and/or (2) it really means it when
it expresses concern about the global economy.
But in either case, the Fed is moving the goal post on inflation just
like they did on economic growth---all in the name of holding on dearly to
QE. In short, ‘data dependency’ is
bulls**t, just like we knew it was.
My
favorite optimist on the subject of inflation.
The only thing I disagree with is his statement that the Fed raising
rates ‘might be’ too little too late. (short):
My
favorite pessimist on the economy and the Fed (medium):
Bottom
line: well, we got a central bank hat
trick with the ECB, the Bank of Japan and
Fed (1) delivering the easy money policies that the Markets so adore and (2) keeping
alive the long held conviction that QE will cure the globe’s economic woes and
if it doesn’t then the answer has to be more QE. I have no explanation for the logic of this
thought process; but it is there. And as
long as it is, stocks seem destined to do well however poor their underlying
earnings.
But as I said
yesterday, ‘However, I remain of the
opinion that stocks won’t reach record valuations in a deteriorating economic environment
in which every monetary trick known to man has been tried and failed and there
remains little chance of fiscal stimulus in the next year, if at all---in the absence
of some extraordinarily positive exogenous event.’
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.
Update
on big four economic indicators (medium):
Investing for Survival
Dividends
versus buybacks.
News on Stocks in Our Portfolios
Economics
This Week’s Data
February
industrial production fell 0.5% versus expectations of -0.2%; capacity utilization
came in at 76.7 versus estimates of 76.9.
Weekly
jobless claims rose 7,000 versus forecasts of up 11,000.
The
March Philadelphia Fed manufacturing index was reported at 12.4 versus consensus
of -1.4.
The
US fourth quarter trade deficit was $125.3 billion versus projections of $115.0
billion.
Other
Politics
Domestic
International War Against Radical
Islam
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