The Morning Call
11/1/16
The
Market
Technical
The indices
(DJIA 18142, S&P 2126) marched in place yesterday. Volume rose; breadth negative, with the flow
of funds indicator breaking down. The
VIX was up yet another 5%, closing in a short term downtrend but above its 100
day moving average for the third day, reverting to support, above its 200 day moving
average for the second day (now resistance; if it remains there through the
close on Wednesday, it will revert to support) and continued the strong follow
through off the lower boundary of its very short term uptrend. The implications for stocks are not good.
The Dow ended
[a] below 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] below its 100 day moving average, now resistance, [b] above its
200 day moving average, now support, [c] within a short term trading range {1995-2193},
[d] in an intermediate uptrend {1972-2574} and [e] in a long term uptrend
{862-2400}.
The long
Treasury ended up slightly on the day, closing below its 100 day moving average
(now resistance), below its 200 day moving average for the third day (now
support; if it remains there through the close today, it will revert to
resistance), below a key Fibonacci level and in a developing a very short term
downtrend. In addition, it remained near
the lower boundaries of its short and intermediate term uptrends. It seems likely a challenge of these uptrends
is coming.
GLD continued the
slow plodding advance that began in early October, finishing above its 200 day
moving average and key Fibonacci level. But
it is below its 100 day moving average (resistance) and within a short term downtrend. This chart is improving; but a lot more is
needed before I get enthused again.
Bottom line: stocks,
bonds and gold were quiet yesterday while the VIX continued to spike---again
not really normal for a tranquil, directionless market. As you know I think this pin action a
function of uncertainty over a number of unresolved economic/political issues. Since this will be a big data week, includes
two central bank meetings and the final messaging ahead of next week’s
election, I wouldn’t expect any change in this pattern near term.
Investment
funds flow this year (short):
Fundamental
Headlines
Yesterday’s
economic data was negative: September personal income was below estimates,
while personal spending was in line, the October Chicago PMI was well below
forecasts and the October Dallas Fed manufacturing grew much slower than in
September.
Overseas,
the big news was OPEC’s failure over the weekend to reach an agreement on a
production cut. Not surprisingly, oil
prices got slapped around. Unfortunately,
stock prices have been positively correlated to oil prices of late. So if oil prices continue to sink it would
likely be another weight on stock prices.
As
I noted previously, last week was a big one in this earnings season and it was
modestly upbeat. Here is a thorough
update on third quarter earnings season (medium):
***overnight:
(1)
October UK manufacturing PMI was down slightly,
(2)
October Chinese manufacturing and services PMI’s were
both well ahead of estimates. If they
are telling the truth, then the good news is that the Chinese economy may be
improving; the bad news is that could lead to a reversal of the current easy
monetary policy,
(3)
The Bank of Japan left key rates unchanged, said that
it would continue to ‘manage’ its yield curve and [drumroll] the inflation rate
continued to fall.
Bottom line: stock
prices are on hold as investors are seemingly uncertain exactly how to price recent
slightly better economic data, divergent central bank policies, the higher
level of drama in US elections, a failed OPEC attempt at a production cut,
currency turmoil in China, heighten US/Russian tensions in the Middle East,
rising inflation concerns and the weakening EU financial system. Clearly that is a lot to digest; so I am not
being critical of investor worries.
That said, I am critical
on their pricing rationale. Stocks on
virtually any metric are dramatically overvalued. So even if we faced none of the above
potential problems, I can’t understand the ‘how to price’ part of investors’
dilemma. And when these those problems
are factored into the equation, I am baffled at their inaction---especially in
the face of the bond guys laying some hurt on bond prices.
I have no idea why
or how much longer that this situation can continue. But if
you haven’t already, take the opportunity to build your cash position by lightening
up on your winners and selling your losers.
Asset
prices are dangerously exaggerated (medium):
The
beginning of a new bull market? (medium):
October
was a record month for mergers (short):
My
thought for the day: investing is a game of percentages. No one is ever right all the time, not even
the best. You shouldn’t expect to
either. Own that. One of the best ways to put that to work is
to learn to take losses quickly. Small
losses won’t kill your portfolio, but big losses will. So have a Sell Discipline. Mine is to Sell if a stock declines 15% below
its cost. That’s mine and there is nothing
magic about it. Have you own discipline
and stick to it rigorously.
Investing for Survival
Which
investment would you prefer?
News on Stocks in Our Portfolios
Revenue of $4.2B (-9.1% Y/Y) misses
by $30M
Revenue of $5.5B (-5.3% Y/Y) misses
by $10M.
Economics
This Week’s Data
The
October Chicago PMI came in at 50.6 versus estimates of 54.3.
The
October Dallas Fed manufacturing index was reported at 6.7 versus the September
reading of 16.7.
Other
This
from the resident optimist (medium):
Japan
refutes old Keynesianism (medium):
Update
on big four economic indicators (medium):
Two
measures of inflation (medium):
Politics
Domestic
International War Against Radical
Islam
48%
of Russians believe that Syrian conflict will lead to WWIII (medium):
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
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