The Morning Call
5/19/16
The
Market
Technical
The indices
(DJIA 17526, S&P 2047) had a volatile day courtesy of the Fed but ended
basically unchanged on the day. So they
remained close to the lower boundary of their short term trading range which
also happens to be the neck line of a head and shoulders formation. Volume fell and breadth continued weak. The
VIX was up another 2.5%, ending within short and intermediate term trading
ranges and drew ever nearer to its 100 day moving average. If it breaks above that MA, it would not bode
well for stocks.
The Dow closed
[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 {17498-18736}, [c]
in an intermediate term trading range {15842-18295} and [d] in a long term
uptrend {5541-19413}.
The S&P
finished [a] above its 100 day moving average, now support, [b] above its 200
day moving average, now support, [c] in a short term trading range {2039-2110},
[d] in an intermediate term trading range {1867-2134} and [e] in a long term
uptrend {830-2218}.
The long
Treasury (down 1.3%), along with virtually every other fixed income security,
got banged hard on heavy volume (as a result of the more hawkish sounding FOMC
minutes released yesterday afternoon), ending below the upper boundary of a
very short term downtrend, pushing through a key Fibonacci support level and
approaching its ascending 100 day moving average. A break below that MA would indicate growing
momentum to the downside (higher interest rates). It did stay within a short term uptrend.
GLD was also hit
hard (and for the same reason as the TLT), bouncing down off a key Fibonacci
level and breaking below the lower boundary of a very short term uptrend---neither
very positive. It did manage to stay within
its short term uptrend as well as above its 100 day moving average.
Bottom line: both
of the Averages remain near a challenge of the lower boundaries of their short
term downtrends. If those levels can’t hold, my attention will shift from
resistance levels to support levels. Bonds and gold got whacked hard on the
prospect of a June Fed rate hike. If
that notion gains any traction, then I will likely sell a portion of the GDX
holding in the Aggressive Growth Portfolio.
More
on sell in May (medium):
Fundamental
Headlines
Only
one datapoint was released yesterday: weekly mortgage and purchase applications
which were down. It is a minor
indicator, so there is little of significance to this as a stand-alone number.
Overseas, first
quarter Japanese GDP came in better than expected; April Chinese housing pricing
soared 12.4% year over year (can you say ‘bubble’?) both of which provided
added ammo to the notion of an improving economic outlook which gained some traction
on Tuesday with the better housing and industrial production stats and the
hawkish statements by two Fed officials.
Now comes the
release of the minutes from the last FOMC meeting which read a good deal more
hawkish than the Fed statement following that meeting. That said, there were still a lot of if’s,
and’s and but’s in the commentary.
Enough so, that there could be no June hike and the Fed could green
apple two step its way to seeming consistency.
All that said,
putting the data, the Fed official comments and the Fed minutes together and
suddenly investors are seemingly worried about a June rate hike. I say seemingly because stocks sold off
immediately following the release of the minutes, then rallied back to flat on
the day. Where the panic really showed
up was in the fixed income and gold market.
I
am going to make no claims to any kind of accurate interpretation of yesterday’s
confusing intermarket price movements. In
fact, I am not sure there is one. In
addition, two of the more dovish Fed members speak today and Yellen will make
public comments twice before the next Fed meeting. So there is plenty of room for more of the
usual on-the-one-hand, on-the-other-hand mewing that ultimately leads to
nothing.
So until we get
something more concrete than two weeks of positive data and a weeks old Fed
minutes, I remain in the camp believes that the Fed doesn’t have the cojones to
raise rates in June because only someone that is ADD could believe that the
economy is doing great based on those two indicators. Plus, in my opinion, for the Fed to raise
rates, it would have be very secure in its own mind that Brexit won’t occur
next month. I remain open to altering
that opinion when the facts change; but so far, they haven’t changed enough.
China’s
reaction (short):
Bottom line: as
far as the Markets go, I will, as usual, wait to see (1) any follow through in
the bond and gold markets before I start disturbing positions there and (2)
some resolution to yesterday’s see saw performance of stocks. In the meantime, cash is a wonderful thing.
More
on valuation (medium):
Economics
This Week’s Data
Weekly
jobless claims fell by 16,000 versus expectations of a 19,000 decline.
The
May Philadelphia Fed manufacturing index was reported at -1.8 versus estimates
of +3.0.
The
April Chicago Fed national activity index came in at +10; however, the March
reading was revised down from -44 to -55.
Other
The
cost of regulation (medium):
Politics
Domestic
International War Against Radical
Islam
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