The Morning Call
3/4/16
The
Market
Technical
The indices
(DJIA 16943, S&P 1993) just keep on, keepin’ on, moving still deeper into
overbought territory; but on lower volume and continuing mixed breadth.
The VIX fell 2.5%,
closing below its 100 day moving average, now resistance but within a short
term trading range. Still it is
reflecting increased stability and that is a plus for stocks.
The Dow closed
[a] below its 100 day moving average, now resistance, [b] below its 200 day
moving average, now resistance, [c] above the lower boundary of a short term
downtrend {16694-17343}, [c] in an intermediate term trading range
{15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and is building 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---though that MA is now at the circa 1999
level [c] above the upper boundary of its short term downtrend for the third
day, resetting the short term trend to a trading range {1867-2104}, [d] in an
intermediate term trading range {1867-2134}, [e] in a long term uptrend
{800-2161} and [f] is building a second higher high.
The long
Treasury rallied, finishing firmly within a short term uptrend and above its
100 day moving average.
GLD rose on good
volume, ending in very short term and short term uptrends, as well as
substantially above its 100 moving average.
Bottom line: the
change in intermediate term momentum (from down to up) took a big step, with
the S&P resetting to a short term trading range. To be confirmed, we need help from (1) the
Dow breaking its short term downtrend and (2) both indices trading through
their 100 day moving averages [and the S&P is close]. Nevertheless, the reset of the S&P is a
significant step in reversal of momentum.
Assuming the
indices can rise above their 100 day moving averages, the all-time highs will
be the next major price objectives which I remain convinced will not be broached.
What
is propping up oil prices? (short):
Fundamental
Headlines
Yesterday’s
economic data was mixed while the primary indicators were tilted to the plus
side: fourth quarter productivity and unit labor costs were less negative than
had been anticipated (+) while the February ISM nonmanufacturing index was
slightly better than expected (+); on the other hand, weekly jobless claims
rose more than estimates, January factory orders were less than forecast (-) and
the February Markit services PMI was very disappointing. This has been the pattern of this week as
well as last week. Clearly, it is encouraging
to the economic bulls---as it should be.
I am holding off reversing my recent recession call because (1) the
longer term trend in the economic numbers is still quite negative and (2) I am
trying to get a handle on the impact of those revised seasonal factors that I
mentioned yesterday.
That
said, this discussion might be academic given the continued abysmal performance
from the rest of the major economies.
Yesterday, South Korean factory output declined and its exports fell to a 14 month low; the
February Markit EU composite PMI declined to a 13 month low; the February UK
services index fell to a three year low and the February Brazil composite PMI
collapsed to 39.0. My point being that
the global economy continues to act as a major headwind to our own growth; so
even if the US avoids recession, its economic progress will likely continue to
be subpar.
Of
course, nobody cares because the consensus seems to be that Draghi and/or the
Fed and/or the Japanese are going to save investors’ bacon by instituting
another round of QE/negative interest rates or in the US’s case, leaving rates
unchanged.
Bottom line: the US economic data releases have been on
something of a roll the last two weeks which clearly makes both the economic
and Market bulls happy; and they should be; the numbers have been good. My argument for not getting too jiggy is that
(1) it is too soon to pronounce that all is well and (2) we need clarity on the
extent to which the revised seasonal adjustment factors have influenced the
latest economic data.
In addition,
investors seem increasing excited in anticipation of more QE/negative rates
from the world’s central bankers---although I remain skeptical about the
benefits of more easy money. Nevertheless,
this anticipation is having the same effect every QE move has had since 2009---it
has driven asset prices to unrealistic heights.
In my opinion, the
current rally represents another excellent opportunity to sell a portion of your
profitable investments and sell your losers.
A
different look at Buffett’s valuation measure (medium):
Investing for Survival
Managing
risks or managing returns.
News on Stocks in Our Portfolios
Economics
This Week’s Data
January
factory orders rose 1.6% versus expectations of up 2.0%.
The
February ISM nonmanufacturing index was reported at 53.4 versus consensus of
53.1.
The
February Markit services PMI came in a 49.7 versus January’s reading of 53.7.
February
nonfarm payrolls rose 70,000 versus forecasts of up 39,000.
The
January trade deficit was $45.7 billion versus projections of $43.9 billion.
Other
Politics
Domestic
Cruz’s economic
plan (medium):
A look at what
Mitt Romney has said and done (medium):
International
The
problems with a Brexit (medium):
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