The Morning Call
11/7/16
The
Market
Technical
Friday
was the second day in a row that the S&P tried and failed to recover from
an oversold condition---not a real good sign.
As you can see, it finished right its 200 day moving average and if it
takes that out, there is little support until the lower boundary of its short
term trading range. However, that is a
ways away; so I can’t get too beared up until or even if it attempts a challenge
of that level.
***that
appears unlikely, at least for today, as stocks are up big time before the open
presumably on the news that the FBI has (again) found nothing inditable in
Hillary’s emails.
The
long Treasury’s chart looks pretty ugly on a very short term basis; however, it
has still not attempted any meaningful challenge of the lower boundaries of its
short or intermediate term uptrends.
Until that occurs, the worse that can be said is that the TLT is
experiencing a little heartburn in the midst of an otherwise healthy set of
uptrends across all major timeframes.
GLD
is trying to regain some upside momentum.
Right now it is stuck at a key Fibonacci level. It needs to successfully challenge that and
then push through its 100 day moving average and the upper boundary of its
short term downtrend before I will even consider re-establishing a position.
As
I noted previously, the VIX (22.5) is telling a more bearish story than the indices. If it remains above the upper boundary of its
short term downtrend through the close today, it will reset to a trading
range. There is some minor resistance
around 26, then nothing until the upper boundary of its intermediate term
trading range, circa 48.
Fundamental
Last
week’s stats was very evenly divided: nine positives, nine negatives and two
neutrals. However, the primary
indicators weighed to the negative
Primary
indicators: October ISM manufacturing index (+), September factory orders (+), September
personal income (-), September construction spending (-), October ISM
nonmanufacturing index (-), October nonfarm payrolls (-) and September personal
spending (0). The score is now: in the
last 57 weeks, seventeen were positive, thirty-six negative and four
neutral. So the data continues to argue
against a Fed rate hike (by its logic).
Overseas, the
data was also mixed. I have said this
before but it bears repeating---for the data just to be mixed is a major
improvement from a month ago. Going from
consistently negative to mixed hopefully suggests that the global decline in
economic activity has come to a halt. It
is still too early to tell; but if this trend continues, I can feel much more
comfortable with my ‘muddle through’ scenario.
However, all is
not improving internationally, (1) OPEC was unable to reach an agreement on an
oil production cut. If it remains so, it
will likely weigh on global inflation and continue to frustrate central banks
in their drive to push it higher, (2) more confusion arose in the UK when a
court ruled that for the Brexit to be initiated, it must receive approval from
Parliament and (3) the bad news continues for Deutschebank as Fitch put its
debt on negative watch.
The central
banks were in the headlines, (1) the FOMC completed its November meeting with
barely a whimper, but it left a December rate hike on the table. Not surprising given its proximity to the
elections. However, it did stay on
message (rate hike in December) and suggested ever so carefully that inflation
might be picking up, (2) the Bank of Japan left its accommodative monetary
policy unchanged, (3) as did the Bank of England, though it warned that the
falling pound could be cause for tightening.
For the moment, it appears that the Fed’s policies may become at odds
with the rest of the central banks with the chance that the Bank of England
could join it. That is not apt to please
market participants.
Meanwhile,
our own political situation is becoming messier. I don’t care who wins, the acrimony has
reached the point that in the next couple of years it is likely that the GOP
will continue trying to tear itself apart and when it can find common ground,
it will be spend its time trying to put Hillary in jail. While I have always favored divided
government, divisiveness is at an extreme and could negatively impact investor psychology.
The
bottom line remains the same: economic stagnation, irresponsible central bank monetary
policy, overleveraged international banking institutions, potential political
mischief both domestically and internationally and grossly overvalued
equities. Use strength to sell a portion
of your winners and all of your losers.
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