The Morning Call
3/3/16
The
Market
Technical
The indices
(DJIA 16899, S&P 1986) made further upward progress yesterday, moving still
deeper into overbought territory; but on lower volume and continuing mixed
breadth.
Liquidity
has deteriorated (short):
The VIX fell 3.5%,
negating its very short term uptrend. It
also finished below its 100 day moving average for the second day; if it
remains there through the close today, the MA will revert from support to resistance---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] 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 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 [c] above the upper boundary of its short
term downtrend {1867-1953}; if it remains there through the close today, 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] 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, ending
in very short term and short term uptrends, as well as substantially above its
100 moving average.
Bottom line: yesterday
the Averages pushed to an overbought level that I have scarcely ever seen
before. Barring a dramatic plunge today,
the latest downside momentum persisting since early January will likely have
been broken. We still need some confirmation
by (1) the Dow breaking its short term downtrend and (2) both indices trading
through their 100 day moving averages.
Nevertheless, the reset of the S&P will be 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.
March
madness (medium):
Eighth
year (presidential cycle) stock pattern (short):
Fundamental
Headlines
Yesterday’s
US economic news was mixed: weekly mortgage and purchase applications fell
while the February ADP private payroll report was stronger than expected. In addition the latest Fed Beige Book was
released and it showed overall economic progress across geographic and sector
lines---though some of it was quite small.
Before
getting too jiggy about employment, take a look at the stats on food stamp recipients
(short):
If
you didn’t read the above ‘March madness’ you missed a reference to the Bureau
of Economic Analysis which revised last year the seasonal adjustment factors for
the winter months to reflect the prior two years difficult winters. That means that this year’s economic stats
for the winter months could be overstated due the mild winter. The question is whether or not that accounts
for the recent strength in the primary indicators. I am not smart enough to know that; but it
will prompt me to ‘go slow’ in reversing our current economic forecast.
Overseas,
South Korean factory output declined 1.9% and exports fell to a 14 month low;
Moody’s reduced China’s credit rating.
US
imposes tariffs on cold rolled steel; shades of Smoot Hawley? (medium):
More
on Draghi’s options (medium):
***overnight,
the February Markit EU composite PMI declined to a 13 month low; the February
UK services index fell to a three year low.
Bottom
line: yesterday’s ADP private payroll
report was a positive as long as you recognize that employment is a lagging
indicator. In addition, the news
regarding the BEA’s revisions in the seasonal adjustment factors makes me less
sanguine about the recent upbeat primary indicators. To be clear, I am not saying that it totally
discounts the improvements; but it suggests that I should wait a little longer
than I ordinarily would before making any adjustments to our forecast.
The economic
stats from rest of the world continue abysmal; so even if the US avoids
recession, it will still have the global economy as a headwind.
On the other
hand, as long as investors believe in the Santa Claus scenario (i.e. an
improving US economy, no further Fed rate hikes and aggressive monetary moves
by the ECB and the Bank of China) stocks are likely continue to be well
bid. I continue to believe that a massively
ineffective central bank QE/negative interest rate policy will not end well;
and hence, the current rally represents an excellent opportunity to sell a
portion of your profitable investments and sell your losers.
Time
to buy emerging markets? (medium):
Update
on Buffett indicator (medium):
News on Stocks in Our Portfolios
General Dynamics (NYSE:GD)
declares $0.76/share quarterly dividend,
10.1% increase from prior dividend of $0.69.
Forward yield 2.24%
Payable May 6; for shareholders of record April 8; ex-div April 6.
Additionally, Board also approved to repurchase an additional 10M shares
of the common stock.
Exxon
Mobil (NYSE:XOM)
says it expects to cut FY2016 capex by
25%to $23B, while touting its financial flexibility and ability to
adjust its investment program based on market demand fundamentals.
In
a press release of its annual
analyst day, XOM says it is on track to start up 10 new upstream projects in
2016-17, adding 450K boe/day of working interest production capacity; XOM says
it has started up 22 major upstream projects since 2012, adding more than
940K boe/day of working interest production capacity, with six of the
project start-ups occurring in 2015.
XOM
says in 2015 it generated $33B of cash flow from operations and asset sales, as
well as $6.5B of free cash flow, and cut capital and cash operating costs by
$12B; upstream total unit costs fell 9% Y/Y, and refining unit cash costs are
15% lower than the industry average.
Economics
This Week’s Data
Weekly
jobless claims rose 8,000 versus expectations of a 4,000 decline.
Fourth
quarter productivity fell 2.2% versus estimates of a 2.7% decrease; unit labor
costs increased 3.3% versus forecast of up 4.1%.
Other
Politics
Domestic
Quote of the day
(short):
International War Against Radical
Islam
The
collapse of EU open borders (short):
Merkel in jeopardy (medium):
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