The Morning Call
5/18/16
The
Market
Technical
Well darn, the
indices (DJIA 17529, S&P 2047) just couldn’t muster any follow through from
Monday’s strong performance. Both ended
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 rose and breadth deteriorated. The
VIX jumped 6%, ending within short and intermediate term trading ranges but is
very close to breaking above its 100 day moving average. If that occurs, 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 rose but continues to struggle, ending below the upper boundary of a
very short term downtrend, but within a short term uptrend, over its 100 day
moving average and a key Fibonacci support level.
GLD was up,
closing within very short term and short term uptrends as well as above its 100
day moving average. It is also about to
challenge a key Fibonacci level. If that
is successful, it seems like a sure bet that it will challenge the upper boundary
of its intermediate term trading range.
Soros adds to
his gold holdings (short):
Bottom line: both
of the Averages are nearing 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.
Fundamental
Headlines
We
got more upbeat economic news yesterday: April housing starts were much better
than expected, though building permits were worse, April industrial production was
stronger than anticipated. Housing
starts and industrial production are also primary indicators, making yesterday
a very strong data day indeed.
Nonetheless, it did have its negatives: April CPI was up more than
estimates, month to date retail chain store sales showed a marked decline in growth
from the prior week. In addition to the
aforementioned April building permits.
So if you are hoping that the US avoids a recession, yesterday was a
breath of fresh air.
That
said, skeptics remain (medium):
And,
picturing the economy (medium):
Unfortunately,
the international stats continue to disappoint.
April UK inflation was below forecasts as was first quarter French GDP;
though the French debt to GDP was higher than expected.
***overnight,
first quarter Japanese GDP came in better than expected; April Chinese housing
pricing soared 12.4% year over year (can you say ‘bubble’?)
Of
course, if you are among the euphoric crowd of easy money devotees, yesterday
was a bummer: strong economic data and a higher CPI than consensus are not the
stuff of more QE. And just to make life
really miserable, two Fed officials said that a June rate hike was still on the
table. I don’t for a second believe
these guys (and gal) will do it---at least not as long as their primary goal is
to keep the Markets buoyed. But those
comments make for good rhetoric and keep alive the notion that the Fed is seriously
debating the transition to normalized monetary policy---when in fact they are
wee weeing in their pants that the Markets might really believe that they intend
to normalize Fed policy.
Bottom
line: OK, so maybe everything isn’t awesome; in particular if you are one of those
lemmings that believe that as long as the global economy is weak then the
global central banks will keep the QE musical chairs game going. I have said this before but I will repeat
it: this situation is not going to end
pleasantly. Either the central banks
become convinced that the global economy is improving and they start ramping up
rates which hammers the algos and carry traders (and likely leads to a recession
since it is highly probable that the global economy isn’t improving). Or the global economy isn’t improving and those
same central bankers sit and watch as conditions worsen because everything they
have tried and keep trying hasn’t worked; indeed, they have only made things
worse (and sooner or later those aforementioned lemmings figure this all out). So its dealer choice. Either a global recession brings a Market
decline or a Market decline brings global recession.
I continue to
believe that cash may be the most valuable asset in your portfolio. Adding to it by selling a portion of your
winners makes a lot of sense.
The
latest from John Hussman (medium):
News on Stocks in Our Portfolios
Revenue of $2.3B (+0.9% Y/Y) in-line
Economics
This Week’s Data
Month
to date retail chain store sales growth was below the level of the prior week.
April
industrial production rose 0.7% versus estimates of up 0.2%.
Weekly
mortgage applications declined 1.6% while purchase applications fell 6.0%.
Other
Politics
Domestic
International War Against Radical
Islam
Senate
passes bill that would lead to investigation of Saudi’s role in 9/11 (medium):
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