The Morning Call
11/2/16
The
Market
Technical
The indices
(DJIA 18037, S&P 2111) experienced one of their biggest move in the last
couple of months---this time to the downside.
Volume declined; breadth was very negative. The VIX was up another 8%, closing in a short
term downtrend, above its 100 day moving average (now support), above its 200
day moving average for the third day (now resistance; if it remains there
through the close today, it will revert to support) and continued the strong
follow through off the lower boundary of its very short term uptrend. The negative implications from its recent
moonshot finally revealed itself in stock prices.
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 down slightly on the day, closing below its 100 day moving
average (now resistance), below its 200 day moving average for the fourth day, reverting
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: the
recent volatility of the VIX finally showed up in stock prices. The S&P closed below the recent tight
trading range, though the DJIA held.
Still that does not augur well of equities near term.
The TLT didn’t
move much price-wise, but volume expanded dramatically and other sectors of the
fixed income market were hammered. As I noted
previously, the bond guys are voting with their feet---meaning expectations for
a Fed rate hike are rising among this group of investors. I am weakening in my resolve that the Fed won’t
raise rates in December. We will get
some potentially important information today in the form of the narrative in
the statement following the close of the FOMC meeting. A more hawkish tone will likely push me to
alter my opinion.
Fundamental
Headlines
Yesterday’s
US economic data improved from Monday: month to date retail chain store
improved, the October Markit manufacturing PMI and the ISM manufacturing index
were both better than expected while September construction spending was very
disappointing.
The
two speeds of this economy (medium and a must read):
Overseas,
the October UK manufacturing PMI was down, the October Chinese manufacturing
and services PMI’s were better than expected and the Bank of Japan left policy
measures unchanged but the inflation rate continued to decline.
***overnight,
the October EU manufacturing PMI came in better than anticipated; German
unemployment hit a record low.
Bottom line: stocks
may have decided that the next direction is down---‘may’ being the operative
word because while the S&P pushed down from its recent tight trading range,
the Dow did not. We did get some
additional information on the litany of uncertainties that I have been
discussing of late: (1) the great data
out of China provided more rationale for the Fed to hike rates in December and
the bond market acted accordingly.
Higher interest rates are not a plus for stocks, (2) the latest voter
polls indicate a much narrowing gap between Clinton and Trump, with the odds of
a Trump victory going up. For better or
worse, Wall Street wants Clinton as the next president. Hence, those polls are not viewed positively by
the stock boys.
Note: remember
Wall Street gave us the tech bubble, the mortgage finance crisis and QEInfinity
euphoria; hence, wanting a Hillary presidency is not exactly a great
endorsement. Of course, save for Trump’s view on trade, most of his proposed
economic policies would be better for the economy than Hillary’s---which would
make you think that an objective investor be giving Trump the benefit of doubt
on that score. But we know from her ‘private’
position, she is in bed with the Wall Street crowd who have gotten filthy rich
under Obama. Clearly, she has their
vote. Indeed, I wonder if a Trump presidency would
be the exogenous event that triggers the mean reversion that I have been
talking about. I am not saying it will
happen, I am just wondering.
I am making no
predictions on whether there is any follow through to the downside and, if so,
how much. However, 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.
Update
on valuation (medium):
My
thought for the day: yesterday I focused on our Stop Loss (Sell) Discipline---the
point of which is to keep your losses small.
I wanted to expand on that thought.
There
are many investors who think that
if they buy a stock at X, then if it declines by 10%, then it, by definition,
must be a better value. I totally
disagree with that notion. No matter how
much homework you may have done on a stock, you still don’t know everything. But the Market does. If it is telling you that you are wrong,
listen. Never throw good money after
bad. Adding to a losing position is a
prescription for turning a small loss into a big one.
Investing for Survival
Faulty
Wall Street assumptions.
News on Stocks in Our Portfolios
Emerson Electric (NYSE:EMR) declares $0.48/share quarterly dividend,
1.1% increase from prior dividend of $0.475.
Revenue of $2.92B (+7.7% Y/Y)
in-line
Economics
This Week’s Data
Month
to date retail chain store sales were stronger than in the prior week.
The
October Markit manufacturing PMI was reported at 53.4 versus consensus of 51.5.
The
October ISM manufacturing index came in at 51.9 versus expectations of 51.6.
September
construction spending was down 0.4% versus estimates of an increase of 0.6%.
October light vehicle sales
totaled 18.0 million versus projections of 17.8 million.
Weekly mortgage applications
were down 1.2% while purchase applications fell 0.4%.
The
October ADP private payroll report recorded a 147,000 increase in jobs versus
expectations of 170,000; however, that was more than offset by the revision in
the September number of up 154,000 to up 202,000.
Other
What
is missing in this economy (medium)?
Politics
Domestic
Number of
doctors accepting Obamacare patients drops 20% (medium):
International War Against Radical
Islam
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