Tuesday, October 18, 2016

The Morning Call--An admission of failure

The Morning Call

10/18/16

The Market
         
    Technical

Yesterday, the indices (DJIA 18086, S&P 2126) drifted lower. Volume fell; breadth was negative.  The VIX up fractionally, closing above its 100 day moving average (support) and in a very short term uptrend but back below its 200 day moving average (now resistance) and in a short term downtrend.  Like virtually all the charts discussed in this section, the VIX is struggling at what appears to be an inflection point.

The Dow ended [a] below its 100 day moving average, now resistance, [b] above its 200 day moving average, now support, [c] in a short term trading range {17092-18693}, [c] in an intermediate term uptrend {11503-24348} and [d] in a long term uptrend {5541-19431}.

The S&P finished [a] below its 100 day moving average, now resistance, [b] above its 200 day moving average, now support, [c] in a short term trading range {1995-2193}, [d] in an intermediate uptrend {1962-2564} and [e] in a long term uptrend {862-2400}. 

The long Treasury was up fractionally (though major sectors of the bond complex were down), closing below its 100 day moving average (resistance), within a very short term downtrend, but bounced back above a key Fibonacci level. It remained within short term, intermediate term and long term uptrends.  TLT’s chart is still healthy but seems to be developing heartburn.

GLD also rose, but ended below a key Fibonacci level, below its 100 and 200 day moving averages (resistance) and in a short term downtrend.  This chart gets uglier.

Bottom line: the Averages traded below minor support levels but not by much.  Even though on the surface, that suggests lower prices when couple with last week’s successful challenges of their 100 day moving averages and their short term uptrends, the pin action has not developed into any meaningful downside follow through.   ‘---so it is unclear just how much support has been loss for stocks.  Likewise, TLT and GLD have stabilized, at least temporarily.  As I said….., it seems like the technical action in all these Markets is suggesting an inflection point.   If that is so, unfortunately, I have no clue which direction prices will break.’

            The myth of ‘cash on the sidelines’ (short):

    Fundamental

       Headlines

            The economic dataflow got off on the wrong foot, yesterday: September industrial production (primary indicator) and capacity utilization came in below forecast while the October NY Fed manufacturing index was very disappointing. 

            Perhaps the biggest news was what occurred over the weekend, i.e. the ECB and the Fed both seemed to embrace the BOJ’s new ‘managing the yield curve’ strategy.   The Markets gave the news a mixed review; I give it an ‘F’.  This is nothing but the admission that all the QE, NIRP, ZIRP have failed.  Yet the central bankers just can’t admit that the more that they try to exercise control over the economy, the less they end up controlling it and the more damage they ultimately impose on the Markets.

            Janet does it again (medium):

Another unintended consequences of ZIRP (medium):

Bottom line: “I think that the poor pin action of the last couple of weeks reflects that investors are having trouble weighing the relative importance of a number of potentially significant economic factors (1) a prospective December Fed rate hike, (2) a softening in attitude toward monetary normalization by the ECB and BOJ, (3) a weakening global economy, (4) a possible poor third quarter earnings season, (5) the effects of a 2017 Brexit and (6) the magnitude of any OPEC production cut.  Plus, the somewhat chaotic US political environment probably doesn’t help.  Clarity will ultimately occur and with it a better sense of Market direction.  Until that happens, patience is important.  That said, it is not too late to take some money off the table.’

            My thought for the day: I constantly harp on avoiding taxes and fees in order to improve your portfolio’s performance.   We are moving into the time of year to be focusing on the former.  Tactics include harvesting tax losses, contributing to retirement plans or a 529 plan and delaying the recognition of income.       

       Subscriber Alert

            The most recent review of CF Industries (CF) determined that the company’s financial condition no longer meets the minimum criteria for inclusion in the Aggressive Growth Universe.  According, it is being Removed from that Universe and Sold from the Aggressive Growth Portfolio at the open this morning.

      
       Investing for Survival
   
            The ‘buy and hold’ nonsense.

    News on Stocks in Our Portfolios
 
W.W. Grainger (NYSE:GWW): Q3 EPS of $3.06 beats by $0.07.
Revenue of $2.6B (+2.8% Y/Y) beats by $10M.

Johnson & Johnson (NYSE:JNJ): Q3 EPS of $1.68 beats by $0.03.
Revenue of $17.82B (+4.2% Y/Y) beats by $110M.

BlackRock (NYSE:BLK): Q3 EPS of $5.14 beats by $0.16.
Revenue of $2.84B (-2.4% Y/Y) misses by $30M.

International Business Machines (NYSE:IBM): Q3 EPS of $3.29 beats by $0.06.
Revenue of $19.2B (-0.4% Y/Y) beats by $200M.


Economics

   This Week’s Data

            September industrial production was up 0.1% versus expectations of up 0.2%; capacity utilization came in at 75.4 versus estimates of 75.6.  Both August numbers were revised down.

            September CPI was reported at +0.3%, in line; ex food and energy it rose 0.1% versus projections of +0.2%.

   Other

            Italy’s banking crisis is spiraling out of control (medium):

            Government accounting sleight of hand (medium and a must read):

                Ford idles four factories (medium):

Politics

  Domestic

The GOP civil war (medium):

AP sat on Iran deal story (medium and a must read):

  International

            The Yemen attack story changes (short):

            EU is a house of cards (medium):


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