The Morning Call
10/10/16
The
Market
Technical
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.
Fundamental
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
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Economics
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Update
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