Monday, October 10, 2016

Monday Morning Chartology

The Morning Call


The Market

       Monday Morning Chartology

            The S&P has clearly lost some momentum.  While it remains in uptrends across all major timeframes, it is struggling to stay above the lower boundary of its short term uptrend and its 100 day moving average.  Were it to break that level, it does have minor support at three other levels to successfully challenge before we would need to worry about the intermediate term uptrend.  However, given investors continuing proclivity to see positives in any situation, I can’t see a challenge of the intermediate term without a dramatic change in attitude.  Indeed to me, it still seems more likely that the S&P will challenge its all-time high.

            The long Treasury is in the midst of a big hiccup.  As you can see, TLT made a high and it has been all downhill since then.  It busted through two Fibonacci retracement levels and is now challenging a third; its 100 day moving average reverted from support to resistance; and it is now in a three month very short term downtrend.  Still it remains in uptrends across all major timeframes.  So it is pointless to get too bearish until, at least, the short term uptrend is reset.  That said, as I have noted previously, the whole debt complex is getting a bit squirrelly.  If wanted to own bonds I would wait till the TLT challenged its short term uptrend.  If successful, it is probably OK to buy a portion of a position.  If not….

            GLD’s chart has a very similar look to TLT, only worse.  It is now in a short term downtrend.  The Aggressive Growth Portfolio Sold its GDX position early last week, so I am now an observer.  GLD has got some work to do to get healthy again---if it can.

            The VIX’s chart hasn’t changed much.  It continues to be stuck between its 100 day moving average (resistance) and the lower boundary of a very short term uptrend.  The weight is to the negative---positive for stocks.

            Bottom line: all the Markets were in flux last week as traders marked up the odds of a December rate hike.  That certainly accounts for the lousy performance in TLT and GLD.  The pin action is stocks was a bit more confusing, as sentiment seemed to swing back and forth from liking a rate hike to not liking a rate hike. Who knows how long that can go on?  However, since I don’t think that there will be a rate hike unless the economic numbers change dramatically for the better, it is seems likely that ultimately all Markets will get back on the free money forever band wagon.  How much pain the central bankers want to put them through before finally doing nothing is the question.


            The overall economic data last week were mixed; as were the primary indicators: the September ISM manufacturing (+) and nonmanufacturing (+) indices, August construction spending (-), September nonfarm payrolls (-) and August/revised July factory orders (0).   However, the Atlanta Fed lowered its projection for third quarter US GDP growth twice, the IMF lowered its estimate for US 2016 growth and also lowered its forecast for 2016/2017 global trade growth.   As you know, I have bent over backwards not to push my recession forecast;  so pursuant to that theme, I am scoring the week as a neutral:  the score is now: in the last 55 weeks, sixteen were positive, thirty-five negative and four neutral.

            Overseas, the numbers were quite upbeat---a rare occurrence in the past year.  Still they have been improving ever so slightly in the last month.  So one could manufacture some hope from that.  However, it is going to take a lot more than what we have so far to seriously consider a pick up global economic activity, especially with Brexit and the problems in the EU financial system yet to be resolved.

            The central banks gave off a somewhat mixed message.  After the BOJ and Fed did nothing in their recent meeting, last week began with signals from the ECB, BOJ and the Fed that it was time to start normalizing monetary policy.  (Thank God, says I.)  But the ECB folded after two days (what else is new?). 

To its credit, the Fed hung tough with virtually all Fed members making hawkish comments about a December rate hike.  We’ll see.  Given its predisposition to chicken out in the face of poor economic data, a hike seems unlikely to me, since there has been little improvement in the stats to date.  That could change, of course; but, at this time, the return to hawkish rhetoric seems a bit overdone to me.

There has been radio silence at the BOJ.  I am not sure what that means; but that can’t last too long.
***overnight, the BOJ moved out the date for when it will achieve its 2% inflation goal.  It also stated that while it would was not going to lower rates at present, it was still prepared to initiate more QE; September Chinese Markit services and composite PMI’s fell slightly; August German exports were stronger than expected; Deutschebank’s CEO has been unable to date to negotiate a settlement with the DOJ over its $14 billion fine.  The bank also said that it was reducing the size of its derivatives portfolio.  Finally, it was revealed that the ECB allowed the bank to cheat on its latest stress test.

Bottom line: our economic forecast is unchanged.  I continue to believe that stocks are grossly overvalued and that the Market is giving investors a gift, allowing them to sell a portion of their winners and all of their losers at high prices.

    News on Stocks in Our Portfolios

   This Week’s Data


            Update on consumer credit (medium):

            Update on big four economic indicators (medium):



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