The Morning Call
10/6/16
The
Market
Technical
Yesterday, the indices (DJIA 18282, S&P
2159) made another strong recovery after a dysfunctional day. Volume was flat; breadth mixed to slightly
positive. The VIX was down 5%, closing
below its 100 day moving average 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 {18167-19890}, [c] in an intermediate term uptrend
{11437-24282} 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
{2139-2375}, [d] in an intermediate uptrend {1955-2557} and [e] in a long term
uptrend {862-2400}.
The long
Treasury had yet another bad day on heavy volume. Again, it was accompanied in its decline by
virtually the entire debt complex. A
couple of upbeat economic stats kept the concern alive of a December Fed rate
hike. It closed below its 100 day moving
average for the second day; if it remains there through the close today, this
MA will revert from support to resistance.
It did manage to finish within very short term, intermediate term and
long term uptrends. TLT’s chart is getting
ever more squirrelly.
GLD was down on
heavy volume, finishing below a key Fibonacci level, below its 100 day moving
average for the second day (if it remains there through the close today, it
will revert from support to resistance) and below the lower boundary of its a
short term trading range (if it remains there through the close today, it will
reset to a downtrend). As I noted
previously, this is chart is getting progressively more unhealthy.
Bottom line: I
posed the question yesterday as to whether Tuesday’s negative Market pin action
reflected investors awakening to the potential end of QE (which had been suggested
in one form or the other by the BOJ, the Fed and the ECB) or just Market
noise. For the stock Market, the answer appears
to be…………Market noise. If so, this would
be twice in as many weeks that investors have reacted negatively to potential bad
news, then somehow recovered their optimism the following day and pushed stock
prices back up. As I noted before, as
long as bad news is ignored or magically reinterpreted, the assumption has to
be that stock prices are going higher, likely challenging their recent highs.
On the other
hand, bond and gold investors were not quite so positive. So either (1) this group continues to believe
rates are going higher while the stock guys chase rainbows or (2) higher rates
are going to be a plus for equities and I am going to be dead wrong on my call
that unwinding QE will result in an unwinding of asset mispricing.
Fundamental
Headlines
There
was lots of economic data reported yesterday and, on balance, it was positive:
the September ISM nonmanufacturing index and the Markit services PMI were well
ahead of expectations; the September ADP private payrolls report and the August
US trade deficit were disappointing; weekly mortgage applications were up while
purchase applications were down and August factory orders were up but the July stat
was revised down by more than the August increase.
Overseas,
the numbers turned negative: EU Markit September Composite PMI was the weakest
since January 2015; the UK Markit September services PMI was below forecasts.
***overnight
August German factory orders were strong.
Meanwhile,
the global financial system remains at the forefront of news:
IMF
sounds alarm on global debt (medium):
Is
the ECB really serious? (medium):
The
rescue of Italy’s Monte dei Paschi (medium):
I
along with others have been pointing out the problem at Deutschebank has less
to do with funding and more to do with its derivatives exposure. Well, the ECB is now proposing a solution to
that---the taxpayer (read’m and weep):
Bottom line: I
said yesterday: ‘it is way too soon to
know whether or not the central bankers are indeed finally realizing that the
whole QE, NIRP, ZIRP policy has been an abject failure. Further, even if they have, we don’t know if
they have the cojones to follow through when Market prices start to unwind the
aforementioned asset mispricing and misallocation. Further, we don’t know how Markets will react
if the central bankers chicken out and restart QE, NIRP, ZIRP or take it one
step beyond and start buying corporate stocks and bonds. In fact, we don’t even know if yesterday was
just Market noise.’
Given the stock
Market’s pin action yesterday, it looks like the latter alternative best describes
what occurred on Tuesday. However, if
you are a bond or gold investor, it does not, suggesting the question of Market
noise is still unanswered. I think we
need more time before concluding one way or the other.
Ray Dalio’s message to the
NY Fed (medium):
My thought for the day: Beating the stock market is a zero-sum game,
before costs. So invest in a well-diversified
portfolio and eliminate as many of the administrative costs (fees, commissions
and taxes) as possible.
Investing for Survival
Life
lessons from Jesse Livermore.
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
Markit September services PMI came in at 52.3 versus the prior reading of 51.0.
August
factory orders rose 0.2% versus expectations of -0.2%, but the July number was
revised down by 0.5%.
The
September ISM nonmanufacturing index was reported at 57.1 versus estimates of
52.9
Weekly jobless
claims fell 5,000 versus forecasts of a 2,000 rise.
Other
BofA
warns of a recession (medium):
Ed
Yardini warns against the idea of the buying stocks (medium and a must read):
Politics
Domestic
International War Against Radical
Islam
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