The Morning Call
1/3/17
The
Market
Technical
Tuesday Morning Chartology
The
S&P couldn’t take out the 2300 level, despite the persistent talk (hope) of
the last two weeks. However as you can
see, it took out some minor support (horizontal green line) and a very short
term uptrend. It is way too soon to be
making much of this performance. The
S&P had come a long way; and how many times did I say that it was extremely
overbought? However, I should note that
stocks have lost two positive seasonal factors: the Santa Claus rally and the
lack of tax selling due to the powerful late year rally.
The
long Treasury managed to hold above the lower boundary of its short term
trading range, likely helped by the nearness (roughly two points lower) of the
lower boundary of its intermediate term trading range. However, this remains a very damaged chart,
given (1) the steep decline on heavy volume and the rebound on lighter volume
and (2) the 100 day moving average has crossed below the 200 day moving
average, usually a signal to expect lower prices.
Like
TLT, gold bounced off the lower boundary of a (intermediate term) trading range
but remains a sick chart. It is in very
short term and short term downtrends and, also like TLT, its 100 day moving
average has crossed below its 200 day moving average.
The
dollar seemed to have successfully made the challenge to the upper boundary of
its intermediate term trading range and reset to an uptrend. However, the beating it took last Friday,
prompts me to hold off on that call for a day or two. I left the boundaries of the intermediate
term trading range and drew the boundaries of a reset uptrend.
The
VIX spiked almost 33% in the last two week, unable to give a real challenge to
the lower boundary of its intermediate term trading range and recovering above
its 200 day moving average. It has to
remain above that MA through the close on Thursday to reset it to support. However, given the proximity of the 100 day moving
average plus its recent volatility, this story is likely to change either by
taking out the 100 day moving average and moving on to challenge the upper boundary
of its short term downtrend or reversing and making another try at the lower
boundary of its intermediate term trading range.
Bottom
line: if you have traded the recent uptrend and not been stopped out, I would
hold to my stop; if you have been stopped out, stay out and watch the strength
of any rally. If you are a long term
investor, I would continue to take some profits in my winners and dump my
losers. The long Treasury and gold are
pointing to higher interest rates. If
those trends continue, sooner or later that will start negatively impact stock
prices.
Fundamental
Headlines
In the week before
Christmas, both the total economic data and the primary indicators were
negative. In the week before New Year’s
the total economic data was negative and there were no primary indicators
reported. This continues the return to
weaker stats. The score is now: in the
last 65 weeks, twenty-one were positive, forty negative and four neutral.
In other news, I
saw that Deutschebank settled its suit with the DOJ for far less than the
original amount. That is a plus though
it hardly diminishes the point that these guys are reckless with their depositors’
money and remain a risk to global financial stability.
The Italian
government took the first steps to bail out Monte Paschi. See above.
The Chinese
government continues to implement additional controls on its currency as the
yuan continues to depreciate; so central bank monetary policy also remains a
risk.
***overnight, the
December Chinese and UK manufacturing PMI’s were both up, while the December
German inflation rate was much higher than expected.
Bottom
line: the economy is not improving. Although
the Trump euphoria is starting to show up in business and consumer sentiment
surveys, it clearly needs to start being reflected in the real numbers. Stocks remain overvalued primarily as a
result of central bank malfeasance. That
may be coming to a head. As I have said
before, I am less concerned about the impact on the economy and believe that it
will be largely reflected in the mean reversion of asset mispricing and
misallocation.
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