The Morning Call
3/2/16
The
Market
Technical
The indices
(DJIA 16865, S&P 1978) soared yesterday even deeper into overbought
territory; but on lower volume and continuing mixed breadth.
The VIX fell 14%,
ending back below the lower boundary of a very short term uptrend. If it remains there through the close today,
the uptrend will be negated.
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 {16709-17442}, [c] in an intermediate term trading range
{15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and made a third
higher high.
The S&P
ended [a] below its 100 day moving average, now resistance, [b] below its 200
day moving average, now resistance [c] above the upper boundary of its short
term downtrend {1872-1957}; if it remains there through the close on Thursday,
the trend will revert to a trading range, [d] in an intermediate term trading
range {1867-2134}, [e] in a long term uptrend {800-2161} and [f] made a second higher
high.
And---weak
new high list (short):
The long
Treasury was down 2% on heavy volume; however, it finished firmly within a
short term uptrend and above its 100 day moving average.
GLD declined .7%,
ending in very short term and short term uptrends, as well as substantially
above its 100 moving average.
Bottom line: yesterday’s
pin action appeared to solve the confusion problem with the S&P pushing
above the upper boundary of its short term downtrend. However, it was anything but convincing as
volume stunk and breadth remained mixed.
That said, if the S&P confirms the break of its short term downtrend,
the downside momentum will clearly be broken.
That would, in turn, suggest a potential assault on the all-time highs which
I remain convinced will not be broached.
Strength
in March and April following down January and February (short):
Fundamental
Headlines
Yesterday’s
economic data returned to upbeat: month to date retail chain store sales and
February light vehicle sales were slightly disappointing, the February Markit
manufacturing PMI came in in line, but the February ISM manufacturing index and
January construction spending were better than expected. Importantly, the latter two are both primary
indicators; so they join last week’s positive primary indicator readings.
The latest from
our resident economic optimist (medium):
Those
numbers notwithstanding, NY Fed head Dudley sang the dovish tune in a speech. I suppose that provides the bulls with an
unbeatable combination---better economic stats and an easy Fed.
On the other
hand: the end of monetary policy effectiveness (short):
Overseas,
the February Chinese manufacturing PMI declined and the services PMI rose at
the slowest rate since 2008; the February EU manufacturing PMI came in at 51.2
versus January’s reading of 52.3; Barclay’s cut its dividend.
Mass
unemployment begins in China (medium):
***overnight,
Moody’s cut China’s credit rating.
With
respect to the above Chinese PMI numbers, investors concluded that this data
will prompt the government to unleash the mother of all stimulus policies. In addition, expectations are rising for the
March 10 ECB meeting will also result in aggressive monetary easing---which was
confirmed by another ‘whatever is necessary’ letter from Draghi to member
bankers.
***overnight,
the yuan continued to weaken.
Draghi’s
next move (medium):
Bottom
line: yesterday’s economic data follow through
to last week’s upbeat primary indicators clearly adds weight to the possibility
that I jumped the gun in calling for a recession. I am not retreating but this series of
positive numbers can’t be ignored. And
just to be clear, if I were to back off, it would be to our prior forecast of
below average economic growth.
On the other
hand, the rest of the world is showing no sign of reversing its slide into
recession; and the central bankers are showing no sign of wising up. Indeed, if yesterday is any example, investor
expectations for aggressive moves from the ECB and the Bank of China and less a
hawkish tone from the Fed seem to be being built into equity prices. While I may have to revise my recession
scenario, nothing has occurred that would make me reconsider my concern that the
untried and ineffective central bank QE/negative interest rate policies will
not end well.
Greenspan: ‘we’re in trouble’ (short):
‘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.’
Update
on valuation.
Who
is buying and who is selling (short)?
Investing for Survival
How
to manage risk when the Market owes you nothing.
News on Stocks in Our Portfolios
Brown-Forman
(NYSE:BF.B): FQ3 EPS of
$0.94 in-line.
Revenue of $1.08B
(-0.9% Y/Y) misses by $20M
Though strongly
disagreeing with United Technologies' (NYSE:UTX) concerns about regulatory and consumer risks to the deal,
Honeywell (NYSE:HON)
- recognizing the target's unwillingness to engage - is dropping its merger
ambitions.
Economics
This Week’s Data
Month
to date retail chain store sales were lower than in the prior week.
The
February Markit manufacturing PMI came in at 51.3, in line.
The
February ISM manufacturing index was reported at 49.5 versus expectations of
48.5.
January
construction spending increased 1.5% versus estimates of a rise of 0.5%.
February light vehicle
sales came in at 17.5 million units versus forecasts of 17.7 million units.
Weekly mortgage
applications fell 4.8% while purchase applications were off 1.0%.
The
February ADP private payroll report showed a job gain of 214,000 jobs versus
projections of an 185,000 increase.
Other
Is
a huge monetary policy error coming? (medium):
Politics
Domestic
Laura Ingraham
on Marco Rubio (medium):
31% of
government assets are student loans---think about that one (medium):
International War Against Radical
Islam
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