The Morning Call
3/8/16
The
Market
Technical
The indices
(DJIA 17073, S&P 2001) had another good day, as volume remained low and
breadth positive. The VIX was actually
up (not usual on an up day), but still closed within a very short term
downtrend and below its 100 day moving average.
The Dow closed
[a] above its 100 day moving average, now resistance; if it remains there
through the close on Wednesday, it will revert to support, [b] below its 200
day moving average, now resistance, [c] above the lower boundary of a short
term downtrend {16678-17426}, [c] in an intermediate term trading range {15842-18295},
[d] in a long term uptrend {5471-19343}, [e] and continues to develop a third
higher high.
The S&P
finished [a] above its 100 day moving average, now resistance; if it remains
there through the close on Wednesday, it will revert to support, [b] below its
200 day moving average, now resistance [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] continues to develop a second higher high.
The long
Treasury was off fractionally but finished well within its short term uptrend,
its 100 day moving average and above a key Fibonacci retracement level.
GLD was strong
again, ending in very short term and short term uptrends, as well as
substantially above its 100 moving average.
However as in noted Saturday, this rally is getting a bit overextended.
And:
Bottom line: the
bulls remain in command and momentum continues to shift to the upside as both
of the Averages are challenging their 100 day moving averages. Assuming those moving averages are reset, the
only thing between current prices and their all-time highs is the breaking of
the Dow’s short term downtrend. Every day, I point out how overbought the
Market is, how low volume is and how many divergences continue to exist---all
of which argue for a pause, at least in the short term. Yet it ain’t happenin’. So the best thing that I can do is lay back
and enjoy the rally to the extent that it pushes up the prices in the stocks in
our Portfolios. But I would not chase
prices.
Fundamental
Headlines
One
US economic datapoint yesterday: January consumer credit was weak and the December
number was revised down dramatically.
The
news was overseas: January German factory orders fell; the IMF and EU are at
loggerheads for a third Greek bailout over the strength of recent Greek reform
measures. In other words, the EU
economic news remains dismal.
***overnight,
February Chinese exports declined 25.4% year over year while imports fell
13.8&; January German industrial production rose 3.3%.
More
important, the Chinese government met for its annual planning session. In it,
2016 economic growth estimate was
lowered and references to potential fiscal stimulus were oblique, at best.
So the current investor
euphoria based seemingly on hopes for strong government actions to attack a
slowing (recessionary?) global economy has suffered another blow. First, it was the G20 meeting whose final
communique was vague and paid weak lip service to the IMF’s recommendation for strong
fiscal moves by individual governments to stimulate the global economy. Now it is China.
China’s
new five year plan/fantasy (medium and a must read):
But
don’t worry, what China lacks in planning, it makes up for in debt creation
(medium):
Of
course, the ECB is meeting this week.
Draghi has already given a preview of things to come in another ‘whatever
is necessary’ letter sent to ECB members last week. Every investor has his/her own wish list for
ECB actions. At this point, I think that
valuations are at a level that if Draghi disappoints, it will not be well
received.
Negative
interest rates are playing with fire (medium):
BIS
warns of gathering storm (medium):
To
be sure, it is likely that at least some investor euphoria is tied to the Fed
doing nothing in its meeting next Tuesday and Wednesday. At the moment, all hopes are tied to the recent
two for one comments by Bullard and Dudley mewing pleasingly about the economy
and yet poo pooing the need for a March rate hike. Again, any deviation from the expected script
would likely not make investors happy.
Finally,
we haven’t heard from the Bank of Japan; and given its history, trying to
figure out what these guys are doing is like betting in a game of Dr. Pepper (seven
card stud where 10’s, 2’s and 4’s are wild).
Bottom
line: I just watched a clip of Goldman’s
Abbey Joseph Cohen talking the bull case.
Her S&P 2016 year end valuation is 2100. In other words, one of the most listened to
strategists is suggesting optimism based on the S&P rising 5% by December
2016. Well, goody for you Abbey and anyone
else that wants to listen. Because if
you are right, the S&P won’t even get back to its all-time high, it won’t
break out of its short or intermediate term trading ranges and it will be
selling at 18X your 2016 S&P earnings estimate---which is most likely way
too high based on the trend of the last two quarters.
I would rather
play Dr. Pepper than take that bet.
Stock prices are a short hair from their all-time highs, the economy is
in recession at worse and sluggishly growing at best, the rest of the world’s
major economies are in the s**t can, US corporate profits are in a downtrend
and dividends are being cut. I don’t
care if Draghi, Yellen and Abe lease a fleet of 777’s and drop bundles of money
around the world, it will not help---if history is any guide.
In my opinion, the
current rally represents another excellent opportunity to sell a portion of
your profitable investments and sell your losers.
Analyzing
2015 Q4 earnings (medium and a must read):
Are
investors too obsessed with dividends (short)?
Investing for Survival
Why
stock market declines are good.
News on Stocks in Our Portfolios
Economics
This Week’s Data
January
consumer credit was up $10.5 billion versus expectations of up $16.5 billion;
the December reading was revised from up $21.3 billion to up $6.4 billion.
The February small
business optimism index came in at 92.9 versus expectations of 94.2.
Other
Inflation
picking up? (medium):
More
on the likelihood of an oil production freeze (medium):
Politics
Domestic
International War Against Radical
Islam
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