The Morning Call
9/27/16
The
Market
Technical
The indices
(DJIA 18094, S&P 2146) had a rough day.
Volume was up but is still low; breadth weakened. The VIX rose 18%, closing in a short term
downtrend and right on its 100 day moving average.
Eighth down
Friday, down Monday of 2016 (short):
The Dow ended
[a] below its 100 day moving average, now support; if it remains there through
the close on Wednesday, it will revert to resistance, [b] above its 200 day
moving average, now support, [c] within a short term uptrend {18069-19803}, [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 {2124-2360},
[d] in an intermediate uptrend {1946-2548} and [e] in a long term uptrend
{862-2400}.
The long
Treasury was up on volume, ending above its 100 day moving average and well
within very short term, intermediate term and long term uptrends.
GLD fell
slightly, finishing above its 100 day moving average and within a short term
trading range. However, it also closed above
the lower boundary of its former short term uptrend. If it can pull away from this trend line, I
will likely reinstate the uptrend.
Bottom line: the
DJIA chart experienced its first test since mid-June---closing below its 100
day moving average and very near the lower boundary of its short term uptrend. There is nothing ominous in this pin
action---yet. The break below the 100
day moving average won’t be confirmed until Wednesday and the short term
uptrend is yet to be challenged. At this
moment, this is just something that needs to be watched.
Fundamental
Headlines
Two
US economic stats were released yesterday: the good news is that they both beat
expectations, the bad news is that they were still awful---new home sales fell
less than anticipated, the Dallas Fed manufacturing index was not as bad as the
prior month.
Overseas,
there was one positive datapoint---German business confidence is near a high;
but there was also one ominous announcement.
German PM Merkel stated that Deutschebank would not receive any state
aid in its battle to stay solvent and that could be a big problem, just not for
Deutschebank but for the EU banking system.
Merkel’s
dilemma (medium):
Update
on Deutschebank (short):
In
addition, the Japanese government bond yield curve is not following the BOJ’s
intended script. (medium):
***overnight,
the World Trade Organization lowered its 2016 estimate for global growth from
2.8% to 1.7%; August Chinese industrial profits rose 19.5% year over year (if
you believe it).
Closer
to home, the Fed is revamping its bank stress test criteria; and that is apt to
make life a bit more difficult for the banks. (medium):
Bottom
line: the Averages got banged around pretty hard yesterday as fears of a
banking crisis surfaced again, driven by Merkel’s promise to not rescue
Deutschebank. Much has been written
about the potential problems lurking not just in the German or EU but the
global financial system---and I have covered this pretty extensively. Of course, we are not going to know how bad
the situation is until some trigger mechanism is activated because there are so
many variables---we are not sure about the veracity of bank accounting, we have
no idea of the true counterparty risks in the huge derivative portfolios of
each bank and we only know what the political class is saying not what they
will do. There may be no banking crisis
or it may be just a hiccup; but we do know there are problems of the same
nature that led to the 2008 calamity. My
only thought is to have some protection in case of a bad outcome---like cash.
Why
negative rates aren’t working (medium):
Stephen
Roach on Fed policy (medium):
David
Stockman on valuations (medium and today’s must read):
My thought for the day: too
often investors will opt for a small but immediate payoff over of a larger
payoff down the road. Some discounting is rational, but investors consistently
take it to the extreme. People who have decades ahead of them to invest trade
in and out of the market to avoid small, short-term losses, almost always at
the expense of long-term returns. I
avoid this by setting Price Disciplines, buying only when a stock reaches its
historic relative and absolute lows, then holding until it achieves historic
relative and absolute highs---as long as the underlying fundamentals of the
company remain sound.
News on Stocks in Our Portfolios
Revenue of $287.3M (+9.7% Y/Y) misses
by $3.13M.
Economics
This Week’s Data
August
new home sales fell 7.5% versus expectations for an 8.5% decline.
The
September Dallas Fed manufacturing index was reported at -3.2 versus a -6.2
reading in August.
Other
Thoughts
on the estate tax (medium):
Politics
Domestic
Quote of the day
(short):
International War Against Radical
Islam
Russia responds to Power’s
accusations (short and a must read):
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for Survival’s website (http://investingforsurvival.com/home)
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