The Morning Call
10/12/16
The
Market
Technical
Yesterday, the
indices (DJIA 18128, S&P 2136) took a beating, breaking below several
resistance levels. Volume was up
slightly; breadth negative. The VIX popped
15%, but still closed below its 100 day moving average (resistance)---though
not by much---and in a short term downtrend.
That means that it is still a net positive for stocks, but getting less
so. In addition, it is still in a very
short term uptrend---a negative.
The Dow ended
[a] below its 100 day moving average,
now support; if it remains there through the close on Thursday, it will revert
to resistance, [b] above its 200 day moving average, now support, [c] below the
lower boundary of its short term uptrend {18230-19953}; if it remains there
through the close on Thursday, it will reset to a trading range, [c] in an
intermediate term uptrend {11472-24317} and [d] in a long term uptrend
{5541-19431}.
The S&P
finished [a] below its 100 day moving average, now support; if it remains there
through the close on Thursday, it will revert to resistance, [b] above its 200
day moving average, now support, [c] below the lower boundary of its short term
uptrend {2147-2562}; if it remains there through the close on Thursday, it will
reset to a trading range, , [d] in an intermediate uptrend {1960-2562} and [e]
in a long term uptrend {862-2400}.
The long
Treasury was down again. It closed below
its 100 day moving average (resistance) and below a third Fibonacci level. It remained
within short term, intermediate term and long term uptrends. TLT’s chart is still healthy but getting less
so.
GLD fell, ending
below a key Fibonacci level, below its 100 day moving average (resistance), in
a short term downtrend and below its 200 day moving average (if it remains
there through the close on Friday, it will revert to resistance). This chart gets uglier.
The dollar has
been up strongly of late, successfully challenging its 100 day moving average
(now support) and the upper boundary of its short term downtrend (now a trading
range).
Bottom line: if
one assumes that yesterday’s pin action represented investors deciding that
maybe a December rate hike isn’t a positive and/or earnings may not be that
good, then that would bring the Averages in line with the other Markets (bonds,
gold and the dollar) reflecting concern about higher rates. However,
while bonds, gold and the dollar have been suggesting that scenario for over a
week now (which by the way, would not be the case if they were worried about
lousy earnings/poor economy), stocks have been a lot more ambivalent. So even though the indices are breaking
support levels, I want to see confirmation of those challenges before becoming persuaded
that equity investors are firmly convinced that higher rates are a negative for
stocks.
That said, if
investors do believe that a rate hike is coming, that it is a bad thing for
stocks and that forces the Fed to fade the December rate hike, then this could
all be a giant exercise in masturbation.
Of course, if the Fed proceeds with the hike, heartburn could ensue.
Recency
bias is creating frustration among the stock guys (short):
Fundamental
Headlines
There
were only a couple of minor US datapoints released yesterday: the September
small business confidence index was slightly weaker than expected while month
to date retail chain store sales were very disappointing.
Overseas,
October German investor confidence was better than expected. In addition, OPEC production soared to record
highs, implying the implementation of yet another commonly used tactic of this
group of thieves---yak about a production cut, raise production, then cut it
back to the prior level.
***overnight,
second quarter EU business investment was up fractionally; August EU industrial
production was above expectations.
Bottom
line: as I noted above, all the Markets seemed to come together in the acceptance
of an increased probability of higher interest rates. Add the uncertainties being created by some
lousy earning numbers (yesterday’s Alcoa profit report was disappointing) and
the implosion of the GOP; and you have got a real s**t stew of potentially bad
news---‘potentially’ being the operative word.
We don’t know if these initial poor earnings reports are indicative of
the entire season; we don’t know that if they are or if they cause Market
weakness, it will cause the Fed to back off the rate hike; we don’t know if the
(declining) bond Market is a sign of lost Fed credibility and that forces the
Fed to raise rates in an attempt to regain that credibility, the weak stock
Market or poor economic/corporate profits notwithstanding; and we don’t know if
yesterday’s pin action was just noise.
However, given the ten day performance in the long bond, gold and dollar
markets, we have strong reason to suspect that they are discounting higher
rates.
In short, there
is a lot of balls in the air right now, which means heighten uncertainty. And heighten uncertainty usually means weak
Markets. Until we get some clarity, that
weakness could continue short term. For
that to continue long term, then a lot of those uncertainties have be resolved
to the negative; and we have no idea whether or not they will.
So while the
Markets could experience some heartburn near term, before I get too beared up,
I want to see resolution to some of the aforementioned issues. That said, it is not too late to take some
money off the table.
Corporations
hitting the limit in payouts (medium and a must read):
The
latest from John Hussman (medium):
My
thought for the day: when you run with the crowd, you get trampled. Stocks are grossly overvalued on almost every
metric available largely because of QE and ZIRP. No one wants to sell as long as they believe
the Fed ‘put’ exists. When they stop believing
that, only one guy gets out the door.
Investing for Survival
A
speck of sand on a long beach.
News on Stocks in Our Portfolios
The Procter & Gamble Company (NYSE:PG) declares $0.6695/share quarterly dividend, in
line with previous.
Economics
This Week’s Data
Weekly
mortgage applications were down 6.0% while purchase applications were down 3.0%.
Other
The
economy is not OK (medium):
The
Chinese banking system continues to deteriorate (medium):
Politics
Domestic
International
Russia orders students studying
abroad home (medium):
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