The Morning Call
9/30/16
The
Market
Technical
The indices
(DJIA 18143, S&P 2151) sold off yesterday.
Volume was flat and breadth deteriorated. The VIX jumped 13%, but still closed below
its 100 day moving average and in a short term downtrend---which remains
supportive of stocks. Nonetheless, it is
still in a very short term uptrend.
The Dow ended
[a] above its 100 day moving average,
now support, [b] above its 200 day moving average, now support, [c] within a
short term uptrend {18096-19830}, [c] in an intermediate term uptrend {11420-24247}
and [d] in a long term uptrend {5541-19431}.
The S&P
finished [a] above its rising 100 day moving average, now support, [b] above
its 200 day moving average, now support, [c] within a short term uptrend {2131-2367},
[d] in an intermediate uptrend {1946-2548} and [e] in a long term uptrend
{862-2400}.
The long
Treasury rebounded, again on volume, closing above its 100 day moving average
and well within very short term, intermediate term and long term uptrends. It remains in a very upbeat two week run in
prices---suggesting that the odds of a December rate hike are shrinking and/or
investors are looking for a safety trade.
GLD fell, finishing
below its 100 day moving average and within a short term trading range. It has now made a fourth lower high---not a
plus for our GDX holding,
Bottom line: the
Averages are back staring at their 100 day moving averages and the lower
boundaries of their short term uptrend.
However, until they break below those levels, nothing is happening, technically
speaking, to suggest a loss of upside momentum.
Key levels to watch: support exists at their 100 day moving averages
and the lower boundaries of their short term uptrends, resistance at their
recent highs (18668/2194).
Fundamental
Headlines
More
less negative economic news was released yesterday, including weekly jobless
claims and the August trade deficit. Other
data: second quarter GDP was slightly ahead of expectations while August
pending home sales were below. Still the
GDP number was the most important and it showed a modicum of progress.
Overseas,
EU economic sentiment improved but German unemployment rose.
***overnight,
September Japanese inflation fell, unemployment rose and household spending
fell; the September Chinese Markit manufacturing PMI was flat (50.1);
September EU inflation rose 0.4%, in
line while unemployment was reported at 10.1%, also in line; second quarter UK
economy grew 0.7%; and last but certainly not least, in a Fed conference, Yellen
stated that the Fed is close to hitting a ceiling on US government bond
purchases and may have to resort to corporate bonds and stocks (does that sound
like an interest rate hike is coming in December?).
Elsewhere,
the cognitive dissonance is gathering steam on the proposed OPEC production
cut.
More
importantly, some large hedge funds have starting pulling money out of
Deutschebank. This is exactly what
occurred at Bear, Lehman and AIG. Remember
insolvency occurs not because of lack of profitability or assets but lack of
liquidity. To be fair, the derivatives market
(where the real risk and volatility shows up) was fairly calm, meaning that
while some institutions withdrew funds no one was attempting to reduce
counterparty risk---which would be the real sign of panic. That
doesn’t mean that it won’t happen; but in its absence the downside in stock
prices is likely limited.
Is
Deutschebank the next Lehman (medium)?
Deutschebank’s
options (medium and a must read):
Bottom line: the
economic data continued to improve yesterday, but also continued the trend where
the positive news has been that things weren’t as negative as expected. I am not saying that this is not a plus; but
being less negative is different from more positive.
More important,
Wednesday’s chorus of Deutschebank deniers was met yesterday by a number of
hedge funds pulling funds out of their prime broker accounts. That does not bode well for the bank’s
liquidity or solvency; though as I noted above, trading in their derivatives
portfolio remained calm as opposed to the Market performance. At the moment, this news could quickly turn
into a horror story. But just as quickly
it could dissipate; after all, the history of the current Market has been to
either ignore bad news or to reinterpret as good news.
That said, I
continue to believe that the Market is giving investors a great opportunity to
shift their asset allocation to a more conservative stance (like more cash).
My thought for
the day: One of investors’ biggest
problems is believing that they are less biased than they really are. If you question that statement, then odds are
it is true in your case. We all suffer
from biases, some more so than others; but we all do it. Coming to grip with that is the best thing
you can do towards becoming a better investor.
News on Stocks in Our Portfolios
McDonald's (NYSE:MCD) declares $0.94/share quarterly dividend, 5.6%
increase from prior dividend of $0.89.
Revenue of $8.49B (+7.6% Y/Y) beats
by $60M
Economics
This Week’s Data
August
pending home sales fell 2.4% versus expectations of a 0.5% increase.
August
personal income rose 0.2%, in line; spending was flat versus estimates of a
0.2% increase.
Other
Imprison
bad bankers (medium):
Politics
Domestic
Saudi Arabia
reacts to 9/11 vote (medium):
International War Against Radical
Islam
France’s
new sharia police (medium):
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
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