The Morning Call
10/25/16
The
Market
Technical
The indices
(DJIA 18223, S&P 2151) had a good day.
Volume fell; breadth improved. The VIX dropped 2%, closing below its 100 day
moving average and in a short term downtrend---which remains supportive of
stocks. It also ended very near the
lower boundary of its very short term uptrend.
A successful challenge of that lower boundary would an even larger plus
for stocks.
The Dow ended
[a] right on 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] above its 100 day moving average, now resistance; if it remains
there through the close on Wednesday, it will revert to support, [b] above its
200 day moving average, now support, [c] within a short term trading range {1995-2193},
[d] in an intermediate uptrend {1966-2568} and [e] in a long term uptrend
{862-2400}.
The long
Treasury declined, ending below its 100 day moving average and is developing a
very short term downtrend. However, it
seems to have found support at a key Fibonacci level and, more importantly,
remains in short, intermediate and long term uptrends. I would characterize this chart as sound long
term but in the midst of a big hiccup.
GLD fell finishing
below its 100 day moving average (resistance), below its 200 day moving average
for the second day (if it remains there through the close on Wednesday, it will
revert to resistance) and within a short term downtrend. The only bright spot is that it continues to
hold above a key Fibonacci level.
Bottom line: yesterday’s
penetration of its 100 day moving average by the S&P notwithstanding, the
Averages remain at an inflection point---‘trading
in a very tight range as investors stew over a number of fundamental issues that
currently lack clarity. I have no
insight as to which way prices will break; but I think that stocks are at a
point where the technical indicators will tell us how the aforementioned
fundamental issues are getting resolved in investors’ minds.’
Fundamental
Headlines
The
US economic dataflow started the week on a mixed note: the September Chicago
national activity index was down but less than the August number, which itself
was revised down; the October Markit flash manufacturing PMI was stronger than
expected.
Overseas,
the stats were solidly positive: the October Markit EU manufacturing, services
and composite PMI’s were ahead on estimates; the Japanese October manufacturing
PMI was above forecast though exports were a disappointment.
Is
global growth picking up? (short):
Also
in the headlines were the announcements of a number large mergers (Time Warner
by ATT, B/E Aerospace by Rockwell Collins, Genworth by China Oceanwide and
Scottrade by TD Ameritrade). That
generally gets investors jiggy as it is interpreted to mean that companies
believe that values still exist in the Market.
And to be fair, mergers are easy to execute when the cost of money is
virtually nil and P/E’s are at all-time highs.
But that said, it is also part of problem of the gross mispricing and
misallocation of assets, which is not a condition about which I get excited.
Bottom line:
this week will be a busy one: lots of economic releases and the biggest week of
this earnings season. That may help
provide clarity to at least one of the current murky fundamental issues (the
trend in third quarter earnings reports, the direction of central bank monetary
policy [which, if not already murky enough, is getting more so as inflation
fears rise and, money supply shrinks], the economic consequences of a Brexit
and an OPEC production cut).
But as I said
last week, ‘I have no idea which of these
factors weigh the most heavily on investors’ minds or how to anticipate the
news flow on each or what defines the degree of positive or negative surprise
on each that would prompt action as a result.
The only way I am going to know is how the Market reacts to that news flow
viz a viz support/resistance levels. As long as clarity is lacking, the Market is
apt to churn directionlessly.’
If you haven’t
already, take the opportunity to build your cash position by lightening up on
your winners and selling your losers.
My
thought for the day: This time is never different because there is nothing new
on Wall Street. There can’t be because speculation is as old as the hills.
Whatever happens in the stock market today has happened before and will happen
again, mostly due to human nature.
Investing for Survival
8 ways the rich view the
world differently.
News on Stocks in Our Portfolios
Revenue of $9.16B (-16.4% Y/Y) misses
by $680M
Revenue of $7.71B in-line (flat
Y/Y)
Revenue of $3.28B (+4.1% Y/Y)
in-line
Revenue of $16.52B (-0.1% Y/Y) beats
by $40M.
Revenue of $14.35B (+4.1% Y/Y) beats
by $80M.
Economics
This Week’s Data
The
October Markit flash manufacturing PMI came in at 53.2 versus consensus of
51.2.
Other
More
on inflation (short):
Problems
in the Italian banking system are still there (medium):
Credit
card delinquencies rise (medium):
Politics
Domestic
Is the US
ungovernable? (medium and a must read):
Obamacare
premiums to rise 25% in 2017 (medium):
International War Against Radical
Islam
Freedom
of speech in The Netherlands (medium):
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for Survival’s website (http://investingforsurvival.com/home)
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