The Morning Call
11/3/16
The
Market
Technical
The indices
(DJIA 17959, S&P 2097) had another bad day, with both indices trading below
round numbers (18000/2100) which tends to have meaning (in this case negative)
to technicians. Volume declined, breadth
negative, though the Averages are reaching oversold levels. The VIX was up another 4%, closing above its
100 day moving average (now support), above its 200 day moving average for the fourth
day, reverting to support and continued the strong follow through off the lower
boundary of its very short term uptrend. In addition, it is now less than a point away
from challenging the upper boundary of its short term downtrend. Nothing
positive here for stocks.
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 {11544-24389} 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 {1974-2576} 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 (now 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. Meanwhile, most of the other segments of the
fixed income market continued to get hammered---the only explanation I have for
this divergence is that the Treasuries are starting to act as ‘safe havens’.
GLD continued to
make slow upward progress, finishing above its 200 day moving average and one key
Fibonacci level. However, it is below
its 100 day moving average (resistance) and within a short term downtrend. It also challenged the next Fibonacci level
but was unsuccessful. This is likely either
be a sign of the loss of momentum or just a pause in a one month uptrend. When we know, it will tell us more about the
strength of the buying behind that one month uptrend.
Bottom line: the
indices fell below two technically important levels yesterday---the lower boundary
of the tight trading range beginning in September and the ‘round number’ levels
of 18000 and 2100. Both point to lower
prices. Having said that, they have been
down seven days in a row which is very unusual; plus, they are getting oversold. So a bounce is to be expected. The
strength of that bounce should provide some insight about whether stocks go
lower or a lot lower.
Fundamental
Headlines
Economic
data releases yesterday were mixed: weekly mortgage and purchase applications
were down; the October ADP private payroll report recorded a much smaller
increase in employment than expected, but the upward revision of the September
number more than offset the decline.
How
real is the recovery? (medium):
In
addition, the FOMC completed its November meeting; and the following statement read
pretty much as expected: (1) no rate increase, (2) a slightly improved
narrative on the economy, implying the December rate hike is on schedule but coupled
with the usual disclaimer that it is subject to additional data, (3) inflation
is edging higher, and (4) a subdued tone that suggested that it wanted the Fed
meeting/statement to be politically neutral.
The
Fed statement:
Central
bank models are mostly bunk (medium):
The
big danger at lower bound (medium):
A
scathing review of ECB monetary policy (medium):
***overnight, the
Bank of England met, left both rates and its bond buying program unchanged but
warned that the falling pound could lead to tighter monetary policy (medium):
Also a UK court
ruled that the decision on triggering the Brexit procedure must be approved by
Parliament (medium):
Bottom line: the
FOMC minutes didn’t really do much to provide clarity to a potential December
rate hike, though they weren’t expected to given the proximity to the elections. That said, fixed income markets continued
under pressure indicating that bond investors believe that an increase is
coming.
So where are we
regarding that multitude of uncertainties facing investors? (1) divergent central bank policies---the BOJ
and ECB have suggested ease while the Fed is not backing off a December rate
hike stocks---conditions worsening, (2) the high level of drama in the US elections---bad
and likely to get worse, (3) OPEC production cut---failed accompanied by much
acrimony, (4) heightened US/Russian tensions in the Middle East---the Russian
fleet has not reached Syria yet and democrats are accusing Putin of interfering
in US elections, (5) rising inflation---see Fed statement and (6) the
deteriorating EU banking system---no new news.
In short, most of the new information received this week on the above
issues has been downbeat.
I continue to
believe that stocks are grossly overvalued and that sooner or later, prices
will experience mean reversion. Take the
current opportunity to build your cash position by lightening up on your
winners and selling your losers.
My
thought for the day: human emotion is one of the biggest enemies of the average
investor. Much has been written about
the impact of greed and fear on an investor’s performance; and they are all
true. It is important to govern those
emotions especially at times when stock prices are at extreme valuations (like
the present). Wishful thinking is
another performance killer. Dreaming
about all the profits one is going to make on some stock inhibits rational
analysis of any change in the fundamentals and/or the willingness to cut bait
when the stock price is indicating that something is wrong. Finally, stubbornness and pride are not attributes. Holding on to a loser because you believe
that you are smarter than the Market is a recipe for disaster. You don’t know more than the Market; and if
you did the SEC would come after you for insider trading.
Investing for Survival
Living
(and investing in multiple timeframes).
News on Stocks in Our Portfolios
Revenue of $680M (-26.7% Y/Y) misses
by $110.84M
Revenue of $6.2B (+13.8% Y/Y) beats
by $360M.
Revenue of $3.23B (+5.6% Y/Y) beats
by $10M
Economics
This Week’s Data
Weekly
jobless claims rose 7,000 versus expectations of a 3,000 fall.
Third
quarter nonfarm productivity climbed 3.1% versus estimates of +2.2%; unit labor
costs were up 0.3% versus forecasts of up 1.4%.
Other
Auto
repossessions soar (medium):
Politics
Domestic
Quote of the day
(short):
International War Against Radical
Islam
The
story of the Iranian ransom payment gets worse (medium):
http://mosaicmagazine.com/observation/2016/11/the-story-of-obamas-ransom-payment-to-iran-gets-worse/
The US needs to get out of Syria
(medium):
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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