The Morning Call
9/29/16
The
Market
Technical
The indices
(DJIA 18339, S&P 2171) continued their advance yesterday. Volume was up slightly and breadth improved. The VIX dropped another 5%, closing below its
100 day moving average and ending in short term downtrend---which is supportive
of stocks. Nonetheless, it remains 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 {18087-19821}, [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 {2128-2364},
[d] in an intermediate uptrend {1946-2548} and [e] in a long term uptrend
{862-2400}.
The long
Treasury declined slightly (though much of the fixed income complex was up)
with volume remaining high and ended 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.
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, though it was up over 2%.
Bottom line: the
Averages held to their upward momentum, closing positively viz a viz all key
indicators. The OPEC news was well received
and could provide more fuel for the current uptrend. 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
The
economic stats continued their somewhat backhanded winning ways yesterday:
weekly mortgage applications were down, but purchase applications were up;
while August durable goods orders were flat versus negative estimates, but the
July number was revised down substantially.
And
this little tidbit from Yellen’s congressional testimony (short):
Overseas,
it was rumored that German financial officials are working on a plan to aid
Deutschebank if it has difficulty raising capital to pay the $14 billion US
fine. And nothing says ‘having difficulty’
like multiple assurances that there is none, i.e. the bank’s CEO denied that
the bank needs a bailout, Draghi claimed that his low interest rate policy was
not responsible for Deutschebank’s pickle and Christine Lagarde promised that
there was no need for government intervention to save the bank. Well, I, for one, certainly feel better.
***overnight, EU
economic sentiment improved but German unemployment rose.
Of
course, the big news of the day was the tentative OPEC decision to cut
production. To be clear, ‘tentative’ is
the operative word, since a formal agreement won’t be complete until
December. However, it seems clear that
increasingly dire economic problems in Saudi Arabia has prompted them to make
concessions despite their intense dislike for the Iranians. Nonetheless, the hard part of effecting this
agreement still lies ahead, because there has been no allocation as yet as who
has to absorb the cut and by how much. The
good news for the bulls is that whether or not an agreement is actually reached,
the immediate favorable response in prices helps all oil producers. The bad news for the bulls is that (1) even
if an agreement is reached, OPEC members have a long history of cheating on the
quotas and (2) there is a lot of non-OPEC producers in the world that will more
than likely jack up production to fill the gap.
Bottom
line: the economic data improved yesterday, though as I noted, this has been a
week 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.
In addition, rumors
of financial help for Deutschebank were turned upside down by disclaimers from
all corners that no aid was needed.
History tells us that when the political class tells the unwashed masses
that there is no problem, it is time to grab onto your shorts and head for
cover. But my conclusion hasn’t changed: ‘there
are too many variables bearing on this problem to make any dire
predictions. However, the bank’s
financial position is weak enough that having some protection against a big
negative event makes sense---especially given the current very generous stock
valuations.’
This
situation was made all the worse as Germany’s second largest bank scraped its
dividend and fired 20% of its workforce.
The
OPEC news is a potential major plus for the economy, though as I cautioned the
OPEC is full of liars, cheats and thieves, so it probably makes sense to put a
governor on the jigginess until the proposes cuts actually show up in the
numbers.
That said,
investor psychology is still quite positive, making almost any news good
news. As long as that is the case,
equity prices are going higher. 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).
The
latest from Lance Roberts (medium):
Historic
returns in stocks, bonds and bills (short):
For
the bulls (short):
Investing for Survival
Be
careful what you wish for.
News on Stocks in Our Portfolios
Revenue of $785.5M (+8.6% Y/Y) beats
by $2.7M.
Revenue of $16.03B (-1.8% Y/Y) beats
by $200M
Economics
This Week’s Data
The
final reading for second quarter GDP growth came in at +1.4% versus estimates
of +1.3%; corporate profits fell 1.7% versus forecasts of -2.2%.
The
August US trade deficit was $58.4 billion versus expectations of $62.3 billion.
Weekly
jobless claims rose 3,000 versus projections of +8,000.
Other
A
short history of Fed forecasts:
Politics
Domestic
International War Against Radical
Islam
Dutch
MP speaks out against radical islam (medium):
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for Survival’s website (http://investingforsurvival.com/home)
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