The Morning Call
11/28/16
I have airport duty Monday
Morning; so I am getting this out early.
The
Market
Technical
Saturday Morning Chartology
The
S&P reset to a short term uptrend last week which puts in uptrends across
all timeframes; it also means that it broke above a trading range dating back
to early 2015. I thought that I would give a long term chart
to put this all in perspective. As you
can see, the S&P has no significant technical barriers between its current
position and the upper boundary of its long term uptrend---giving it room to
advance some more before having to challenge that boundary. Given the level of euphoria
in this Market right now, it is easy to assume that it will challenge that
boundary. If I were a trader, (which I am
not), it would make sense to buy (this would be a trade, not a long term
investment) a very liquid Market ETF (VYM, VIG) but keep a very tight stop.
Clearly,
TLT has taken a shellacking in the last three months. But it has a number of support levels that it
has to overcome in order to move substantially lower: the lower boundaries of
its short and intermediate term trading ranges, its 200 day moving average and
the big kahuna, the lower boundary of its long term uptrend.
Mirror,
mirror on the wall; who is the ugliest of them all? Gold.
Notice that there is virtually no support between its current price and
the complete retracement of all of 2016’s advance.
The
dollar is pushing up against several (resistance) boundaries of its own. It broke above the upper boundary of its
short term trading range, then fell back below it (voiding the break) and now
is once again over it. If it remains
there through the close Monday, it will reset to an uptrend. However, it will be facing the upper boundary
of its intermediate term trading range, which is also a key Fibonacci
retracement level. This all suggests
that, from a strictly technical point of view, further increases will be a
struggle.
The
VIX convincingly broke below the lower boundary of a very short term uptrend,
suggesting the stocks have more upside.
But note that it is nearing the lower boundary of its intermediate term
trading range (five years in the making), indicating that the upside could be
limited.
Fundamental
Headlines
The
economic data last week was again quite positive: above estimates: October
existing home sales, weekly mortgage and purchase applications, October new
home sales, month to date retail chain store sales, October durable goods
orders, the October Chicago national activity index and the November Richmond
Fed manufacturing index; below estimates: weekly jobless claims, November
consumer sentiment, the November Markit flash services PMI and October trade
balance. The score is now: in the last 60
weeks, twenty were positive, thirty-six negative and four neutral.
By
itself that is hardly an argument for an improving economy; however, (1) the
last couple of weeks have been strong; and if that continues for another three
or four weeks, then, at the very least, we can say that the decline in economic
activity is likely over, (2) even if the data doesn’t improve near term, it
seems reasonable to assume that the significant pick up in sentiment could
begin to positively influence spending and investing decisions and (3) there is
little doubt in my mind that if the GOP enacts the fiscal program that it
says it is going to enact, it will be a plus, perhaps a meaningful
plus, for the growth prospects of the economy longer term.
But
there are doubters (medium and a must read):
In
addition, the latest FOMC minutes were released on Wednesday and they did nothing
to alter the view that a December rate hike is in the cards;
That
said, the dollar shortage is starting to cause problems globally, which argues
against any tightening (medium and a must read):
For
example, funding problems continue in Europe as the repo market tightens.
Overseas,
the November EU Markit flash manufacturing, services and composite PMI’s came
in better than expected; third quarter UK GDP was in line and November Japanese
inflation was higher than expected.
Finally:
(1)
several US banks have been added to the list of
systemically dangerous banks list (medium):
(2)
OPEC continued its kabuki dance as almost all parties
hinted that an agreement on production cuts was going to happen. Then, the meeting was cancelled.
(3)
in other news, the Japanese government said that, in
the future, it will rely more on fiscal policy to stimulate the economy.
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