The Morning Call
12/8/16
The
Market
Technical
The indices
(DJIA 19549, S&P 2241) exploded higher yesterday on enormous volume. Breadth strengthened, extending prices into
even more overbought territory. The VIX
(12.2) actually rallied 4%, but remained below its 200 day moving average (now
resistance) below its 100 day moving average (now resistance) and within a
short term downtrend. It would seem
really contradictory on such a powerful up day to suggest that the VIX was stabilizing
above the lower boundary of its intermediate term trading range (10.38).
The Dow ended
[a] above on its 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] in a short term uptrend {18150-20200}, [c] in
an intermediate term uptrend {11604-24454} and [d] in a long term uptrend
{5541-20148}.
The S&P
finished [a] above its 100 day moving average , now support, [b] above its 200
day moving average, now support, [c] within a short term uptrend {2116-2460},
[d] in an intermediate uptrend {2000-2602} and [e] in a long term uptrend {881-2419}.
The long
Treasury (120.4) rose fractionally, 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 very short term downtrend. The question that I raised yesterday is, will
it challenge the lower boundary of its short term trading range (117.3) and the
lower boundary of its intermediate term trading range (115.3) or is attempting
to build a base? Too soon to know.
GLD also moved
up, ending below its 100 day moving average (now resistance), below its 200 day
moving average (now resistance) and below the lower boundary of its short term
downtrend. Like TLT, it seems to be
trying to stabilize at a key Fibonacci level.
The dollar drifted
lower, remaining below the upper boundary of its short term trading range. It would appear that its recent challenge of
that boundary is over for the time being.
However, it is still in a strong very short term uptrend and well above
its 100 and 200 day moving averages.
Bottom line: price
is truth and the truth is the indices are going higher, likely targeting the
upper boundaries of their long term uptrends.
I am less amazed by the pin action than I am about the volume. It has been stunning. Short term, it almost certainly suggests further
upward momentum; longer term, I have to wonder if it isn’t a sign of a speculative
blow off. I recognize that is talking my
book; but it is still a valid question.
TLT’s (seconded
by the entire fixed income complex’s) better performance continue to support
the notion that it is trying to find a base.
Even though GLD’s short term chart is just as ugly as TLT’s, it too
seems to be attempting to stabilize.
Fundamental
Headlines
It
was a slow day for economic releases which weren’t all that great anyway: weekly
mortgage applications fell while purchase applications rose and October
consumer credit grew slower than anticipated.
Overseas,
the European Commission fined three major banks, one of which is JP Morgan (not
again), E485 million in a Euribor rate price fixing; UK industrial production
declined the most in eight months; China’s foreign exchange reserves fell for
the fifth straight month and Russia said that it would abide by the OPEC
production cut agreement.
Update
on the Monte Paschi bailout (in) (medium):
***overnight,
November Chinese exports and imports improved slightly, revised third quarter
Japanese GDP was much lower than originally reported, British parliament voted
to proceed with Brexit by March 31, 2017, and the ECB surprised everyone by
announcing that it will begin tapering its bond buying program.
Bottom line: all
in all, there is not much there to explain yesterday’s pin action. There was some talk that there is going to be
some upcoming changes in the S&P index that had the index funds scrambling
in anticipation---but that doesn’t do much for me as an explanation. Probably the best reason was that a majority
of investors, like moi, had been were growing increasingly cautious, had too
much cash (or were short) and scrambled to participate.
Which leads to
my thought of the day: the great disadvantage of being an institutional
investor is that your professional reputation forces you to focus on chasing
short term performance irrespective of your best judgment about long term
valuation. That ultimately penalizes the
investor because it (1) increases transaction costs and (2) prompts an equal
and opposite reaction when short term performance worries force a sale.
I want to
reemphasize a point that I have been making of late. My primary investment objective is to
minimize losses in my portfolio not maximize gains. That means that it would be stupid for me at
this point to take the risks associated with buying stocks that are at or near
their historical high valuations on the thesis that there might be another 5%
upside. As I have noted before, I would
rather be wrong short term and miss some upside than be wrong long term and
take a big hit to the principal value of my portfolio.
The
latest from David Rosenberg (medium):
Investing for Survival
The
key to successful investing,
News on Stocks in Our Portfolios
Economics
This Week’s Data
October
consumer credit advanced $16 billion versus expectations of growth of $19
billion.
Weekly
jobless claims fell by 10,000 versus estimates of a 7,000 decline.
Other
The
EU financial crisis is more a function of irresponsible lending than irresponsible
spending (medium and today’s must read):
Problems
in India (medium):
Corporate
taxes in the Trump world (medium):
Politics
Domestic
Three new Trump
nominees.
And:
And:
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
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