The Morning Call
10/28/16
The
Market
Technical
The indices
(DJIA 18169, S&P 2133) drifted lower mixed yesterday. Volume was down; breadth mixed. The VIX was up another 8%, closing in a short
term downtrend and above its 100 day moving average (now resistance); if it
remains there through the close on Monday, it will revert to support. In addition, it continues the strong follow
through off the lower boundary of its very short term uptrend. The implications for stocks are not good.
The Dow ended
[a] below its 100 day moving average, now resistance; [b] above its 200 day moving average, now
support, [c] within a short term trading range {17092-18693}, [c] in an
intermediate term uptrend {11529-24374} 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] within a short term trading range {1995-2193},
[d] in an intermediate uptrend {1970-2572} and [e] in a long term uptrend
{862-2400}.
The long
Treasury got whacked hard on volume, ending below its 100 day moving average, in
a developing a very short term downtrend
and below a key Fibonacci level and its 200 day moving average (now support; if
it remains there through the close Tuesday, it will revert to resistance). In addition, other segments of the debt
market were also pounded. While TLT remains
in short, intermediate and long term uptrends, it is nearing the lower
boundaries of the first two. It sure
looks like a challenge of these uptrends is coming.
GLD rose, finishing
below its 100 day moving average (resistance), within a short term downtrend, below
its 200 day moving average for the second day (now support), commencing a new
challenge (if it remains there through the close next Monday, it will revert to
resistance). The only good news is that
it continues to hold above a key Fibonacci level. A fading ray of hope.
Bottom line: yesterday’s
pin action only added to the overall confusion in the Markets. Stocks continued trading in a very tight
range; but the VIX is signaling potential trouble ahead. The fixed income Market
took another big leg down---reflecting either higher interest rates, higher
inflation or both. However, GLD did
nothing, suggesting that precious metals investors are neither worried about
higher rates nor excited about higher inflation. Confused?
Me too. This is a bad time to be
making bets.
Fundamental
Headlines
Yesterday’s
US economic data was mixed: the October Kansas City Fed manufacturing index was
flat with September, September durable goods orders were below estimates, but
ex transportation they were above, September pending home sales were better
than expected and weekly jobless claims were worse.
In
addition, we got another big merger announcement---Qualcomm buying NXP
Semiconductors. That should contribute
in investor jigginess.
Overseas,
the good news is that third quarter UK GDP grew faster than expected, which
makes this a very good week for stats.
Not that it is enough to alter the outlook, but it could be a start. The bad news is that Deutschebank revealed
that its deposit base is shrinking.
Bottom line: the
equity world seems frozen in inaction while bonds keep signaling higher
rates. That seems incompatible to me;
and if I had to choose which to believe, it would be the bond market. On the other hand, the stock boys may not
care if rates are going higher. That
also doesn’t make any sense to me either.
Since stock prices rose on easy money, I (continue to) believe that they
will go down on tight money. The only
thing that could alter that is if the economy/corporate earnings were about to
push to the upside. I see little on the macroscale
that would suggest that; although as I have noted, this earnings season is
coming in somewhat over expectations---‘somewhat’ being the operative word.
In short, while
the stock market continues to be stuck in a narrow trading range, apparently
waiting for clarity to a number of pending issues, bond investors are voting
with their feet. I have no idea how much
longer that this can continue. But it has been almost two months now since
stocks went flat and bonds started falling; so there is no reason that can’t go
on for another two months. Patience.
If you haven’t
already, take the opportunity to build your cash position by lightening up on
your winners and selling your losers.
Investing for Survival
The
art of doing nothing.
News on Stocks in Our Portfolios
Economics
This Week’s Data
September
pending home sales rose 1.5% versus expectations of up 1.0%.
The
October Kansas City Fed manufacturing index was flat with September’s reading.
The first reading
of third quarter GDP growth was 2.9% versus forecasts of 2.5%.
Other
China’s
slowing industrial profits (medium):
Charts
on negative yielding debt (short):
Update
on auto loans (medium):
Home
ownership at a new interim low (short):
Politics
Domestic
International War Against Radical
Islam
Is the US headed to war in Syria
(medium)?
Iran takes more US hostages
(medium):
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for Survival’s website (http://investingforsurvival.com/home)
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