The Morning Call
3/24/16
The
Market
Technical
The indices
(DJIA 17502, S&P 2036) fell again on very low volume and mixed breadth. However, the VIX was up 5%, suggesting more
investor concern than was apparent in the Averages’ pin action.
The Dow closed
[a] above its 100 day moving average, now support, [b] above its 200 day moving
average, now support, [c] in a short term a trading range {15431-17758}, [c] in
an intermediate term trading range {15842-18295} and [d] in a long term uptrend
{5471-19343}.
The S&P
finished [a] above its 100 day moving average, now support, [b] above its 200
day moving average, now support, [c] within a short term trading range {1867-2104},
[d] in an intermediate term trading range {1867-2134} and [e] in a long term
uptrend {800-2161}.
Only 4% from the
highs (medium):
S&P
reaching target (medium):
The long
Treasury spiked, closing back above the upper boundary of a very short term downtrend
and a Fibonacci support level. It remained
within a short term uptrend and above its 100 day moving average.
GLD plunged 2 ½%,
voiding a very short term uptrend and falling below a Fibonacci support
level. However, it remains within a
short term uptrend and above its 100 day moving average. This performance was a bit confusing in as
much as GLD and TLT have both been the beneficiaries of a risk off trade of
late. So the decoupling suggests that some
new factors playing on the Markets,
Bottom line: like Tuesday, there was enough bad news (Fed,
oil) yesterday that stocks could have really gotten cracked. The fact that the retreat was fairly
contained suggests that the bulls are still in control. Nonetheless, the split performance of gold
and the long Treasury indicates that some other new factor may be coming into
play that could change the dynamics in the equity market.
Fundamental
Headlines
Yesterday’s
US economic data turned sour again: weekly mortgage and purchase applications
fell and February new home sales rose less than anticipated.
However,
other developments were on investors’ minds:
(1)
yet another Fed official came out in support of raising
rates sooner rather than later. So the
third time was the charm so to speak. Stocks
down, gold down and dollar up all make sense in the context of anticipating
higher rates; but lower long bond rates [higher prices] don’t. The question is, are those collective Fed
comments just a lot of Fed fluff or do they carry any policy weight?
I have a tough time believing that all those
commenting officials who voted for easy money last week have executed such an
abrupt about face. But we will see. That said, if, in fact, the Fed has turned on
a dime, that is probably not a good sign for stock prices.
Also probably worth mentioning is the Mauldin thesis
that I discussed last week, that is, the Chinese told the G20 they needed a
stable yuan [trade balance] and if anyone acted counter to that they would
unleash a substantial devaluation. Part
of that was a warning to Japan and the EU not to engage in competitive currency
devaluations, part was a warning to the US not increase the value of the dollar
[since the yuan exchange rate is tied to the dollar]. Clearly, higher rates bring a stronger
dollar---and the Chinese will likely take great exception to that, if John is
right.
(2)
oil prices got smacked on rising inventories
numbers. Of course, if all the happy
talk about an oil production freeze in April were anything other than happy
talk, that inventory report shouldn’t mean all that much. On the other hand, if all those experts I have
been quoting [linking to] in these notes are correct [no freeze and no
supply/demand balance for at least a year], I can understand. I would add if this ‘freeze’ scenario starts
to fade, then the fears that abounded a month ago over the impact on the
financial system of a weakening oil industry will be back in play.
***overnight,
there are unsubstantiated reports that Japan will unveil its version of ‘helicopter’
money (medium):
Bottom line: I
am not sure what Fed officials think that they are doing (sounding dovish, then
reversing to hawkish); in fact, I don’t think that they know. But I believe that if they continue doing it,
they will destroy the one thing they have going for themselves---investors’
confidence. The Fed can’t keep saying
that it is data dependent and then do a Bugs Bunny routine, hopping from
concern over the economy to optimism over the economy, in time intervals so
short that the data hasn’t had a chance to change---which leads to a whole
other problem which is that to the extent that the data has changed, it has
only gotten worse.
Of course, that
is the Fed’s problem. My problem is
having to wait for either Fed and/or investors to read and compute the news of the
constant stream of poor global economic stats and declining corporate
profitability. I have no idea when that
magic moment will occur. Until it does,
stocks will remain overvalued.
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.
Investing for Survival
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Economics
This Week’s Data
February
new home sales rose 2% versus expectations of up 3%.
February
durable goods orders fell 2.8% versus estimates of down 3.0%; ex
transportation, orders declined 1.0% versus forecasts of -0.2%.
Weekly
jobless claims increased by 6,000 versus consensus of up 3,000.
Other
The
Bank of China’s problem (medium):
Politics
Domestic
International War Against Radical
Islam
Europe
at war (medium):
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