The Morning Call
10/11/16
The
Market
Technical
Yesterday, the
indices (DJIA 18329, S&P 2162) rallied, bouncing off their 100 day moving averages
and the lower boundaries of their short term uptrends. Volume declined; breadth was positive. The VIX was down, closing below its 100 day
moving average (resistance) and in a short term downtrend---which remains
supportive of stocks. Nonetheless, it is
still in a very short term uptrend---a negative.
The Dow ended
[a] above its 100 day moving average,
now support, [b] above its 200 day moving average, now support, [c] within a
short term uptrend {18203-19926}, [c] in an intermediate term uptrend {11472-24317}
and [d] in a long term uptrend {5541-19431}.
The S&P
finished [a] above its rising 100 day moving average, now support, [b] above
its 200 day moving average, now support, [c] within a short term uptrend {2145-2381},
[d] in an intermediate uptrend {1957-2559} and [e] in a long term uptrend
{862-2400}.
The long
Treasury was down again; although other segments of the debt complex rallied
fractionally as they did on Friday. 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 was up
slightly, but finished below a key Fibonacci level, below its 100 day moving
average (resistance), in a short term downtrend. However, it managed to recover back above its
200 day moving average, negating last Thursday break---this being the first
positive development in the GLD chart since early July.
Bottom line: the
Averages once again rebounded from the support offered by the lower boundaries
of their short term uptrends and their 100 day moving averages---which suggests
to me that so far either the stock guys aren’t worried about a December rate
hike or they don’t believe that the Fed will act.
TLT’s pin action
is still pointing to a rate hike; though other segments of the debt market
rallied yesterday, the first indication of doubt. GLD rose fractionally yesterday but its ugly,
ugly chart continues to suggest higher interest rates.
Fundamental
Headlines
No
US datapoints were reported yesterday; indeed, this week is going to be a real
snoozer aside from the release of the minutes from the last FOMC meeting.
Monetary limbo brings
nowhere growth (medium):
The
Fed is afraid of its own shadow (medium):
This was offset
by a barrage of foreign news:
(1)
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,
UBS chairman warns of central bank intervention (medium):
(2)
September Chinese Markit services and composite PMI’s
fell slightly,
(3)
August German exports were stronger than expected,
(4)
Deutschebank’s CEO has been unable 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,
(5)
Putin announced that Russia would go along with an OPEC
production cut [please remember all these guys lie and cheap].
***overnight,
October German investor confidence was better than expected; OPEC production
soars to record high.
The other item
to pay attention to this week is the start of the third quarter earnings
season. While it officially starts today,
it got off to a very inauspicious pre-season last Friday when two industrial
bell weathers (PPG, HON) reported and gave very disappointing guidance for
future earnings growth prospects. If
these reports are an indication of things to come, this could bring some heartburn
to the Market. Of course, it is too soon
to make that kind of prediction; but it is something that requires close
attention.
Winning
the ‘beat the estimate’ game (medium):
Bottom line: barring
exogenous events, this week’s headlines will focus on earnings and those
aforementioned FOMC minutes. How they
affect the Markets will clearly depend on the element of surprise that they contain.
Over the
weekend, we did receive more clarity on the questions that I raised last week
regarding the direction of central bank monetary policy. It came in the form of the BOJ weekend
announcement that (1) it would not achieve its inflation goal on schedule and
(2) while it is not lowering rates immediately, it stands ready to do so if
needed. So the score: have the central
bankers realized their policies have been a failure (score: two no, one
question mark); do they have the cojones to follow through when Markets throw a
tantrum (score: two no, one question mark); how will the Markets react if they
take QE, NIRP, ZIRP to a new level? (score: three question marks).
‘My bet is that nothing will change in
central bank monetary policy until it is forced…. It also means that the underlying assumption
has to be for higher stock prices, absent a ‘forcing’ event.’
My
thought for the day: investors generally focus their risk fears on the circumstances
that caused the last Market upheaval---like the generals, they fight the last
war instead of preparing for the next. Today,
that would mean concentrating on a potential collapse of the financial system. To be sure, I list that as one of the major
risks to the economy and the Market in every Closing Bell. And I chronical the woes and crimes of US
banksters as well as those in foreign banks; the most recent being
Deutschebank. However, when, as and if
the Market rolls over, it is apt to be caused by something other than the
insolvency of the banking system. From
an investment strategy viewpoint that means that any hedges/protections you set
up to defend your portfolio in the case of a Market downturn should not be solely
focused on the risk of bank insolvency.
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