The Morning Call
9/20/16
The
Market
Technical
The indices
(DJIA 18120, S&P 2139) were off slightly yesterday. Volume was very low; breadth weak. The VIX rose 1 ¼%, bouncing off its 100 day
moving average. This is not a positive sign for stocks. However, as long as it remains in a short
term downtrend, the implications are not ominous.
The Dow ended
[a] above rising 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] within a short term uptrend {17962-19696}, [c]
in an intermediate term uptrend {11402-24229} 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 {2144-2350},
[d] in an intermediate uptrend {1941-2543} and [e] in a long term uptrend
{862-2400}.
The long
Treasury (134) declined fractionally, remaining well within short term,
intermediate term and long term uptrends.
However, it has negated a very short term uptrend and fallen below its 100
day moving average. That suggests the
potential for further weakness though the trend to lower rates will remain
intact until the short term uptrend (126) is broken.
GLD was up, but confirmed
the break of its short term uptrend, resetting to a trading range. However, it bounced off its 100 day moving
average and a key Fibonacci level. I am
interpreting this as a hopeful sign and continue to Hold the GDX position---but
my finger is on the trigger.
Bottom line:
while the Averages have experienced a bit of weakness, nothing has occurred that
would suggest any change of trend. The
assumption remains that the indices will challenge the upper boundaries of
their long term uptrends.
Fundamental
Headlines
It
was a slow day for economic news. Nothing
overseas and only one minor datapoint in the US: the September housing index
was well above estimates. However, I don’t
think means a lot when viewed in the light of last three weeks of poor stats.
Overnight,
Chinese loan demand drops to all-time low.
Central
banks will probably control the headlines this week as our own FOMC and the
Bank of Japan both meet to contemplate their respective navels. In the US, investors will likely be treated
with another of those ‘one the one hand, on the other hand’ narratives whose bottom
line will be no action today but just wait till tomorrow because the economy is
continuing to improve. Gosh only knows
how they can keep a straight face as they mouth such rubbish.
In
Japan, investors are being promised a thorough examination of policies with a
hint that something bigger and better could be forthcoming. However, given the extent of Japanese QE,
about the only thing bigger and better would be tender offer from the Bank of
Japan for the entire Japanese economy.
Mohamed
El Erian waxes poetic about the mess the central banks have created for
themselves (medium):
Another
factor that will be in play this week is the financial system. (Remember this
is one of our major economic risk factors.)
While I was gone, Deutschebank got fined $14 billion and a scandal broke
at Wells Fargo for unauthorized activity in customer accounts. I bring this up because the CEO of Wells is
due to testify before congress this week.
The point here being that this is not going to enhance the public
confidence in our banking institutions.
Italian PM
unloads on Deutschebank problems (medium):
Bottom
line: the central banks continue to be the nemesis of the global economy. They have engaged in an unprecedented level
of monetary expansion in the name of stimulating growth---a policy that has
failed miserably. They are now stuck
with inflated balance sheets, moribund growth but grossly mispriced assets; and
they have no clue how to normalize monetary policy without trashing global
securities markets. So they obfuscate
and pray for a miracle. That is likely all
that is going to occur this week---more obfuscation and more prayers but
nothing of substance to correct the miscarriage of central bank policy.
The
lessons bubbles teach us (medium):
The
latest from John Hussman (medium):
My thought for
the day: Investors tend to want
conditions to remain unchanged. They do
so in part because they are averse to recognizing problems (losses). They stick
with a broker even though his recommendations haven’t worked; they hold on to a
stock even though it has failed to meet their original objective; they don’t
make changes in their asset allocation even though the original assumptions for
the allocation are no longer valid. A
dangerous mindset in a changing world.
Investing for Survival
The
value of rebalancing and diversification.
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
September housing market index came in at 65 versus expectations of 60.
August
housing starts fell 5.6% versus estimates of a decline of 1.7%; building
permits dropped 1.1% versus forecasts of a 1.3% increase.
Other
Politics
Domestic
International War Against Radical
Islam
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