10/23/15
The
Market
Technical
The indices
(DJIA 17489, S&P 2052) staged a Titan III shot yesterday. The Dow ended [a] above its 100 moving
average; if it remains above that MA though the close on Monday, it will revert
from resistance to support, [b] below its 200 day moving averages, which
represents resistance, [c] in a short term downtrend {17052-17775}, [d] in an
intermediate term trading range {15842-18295}and [e] in a long term uptrend {5369-19175}.
The S&P
finished [a] above its 100 moving average; if it remains above that MA through
the close on Monday, it will revert from resistance to support, [b] below its
200 day moving average, which represents resistance, [c] above the upper boundary
of its a short term downtrend {1981-2042}; if it remains above this boundary through
the close on Monday, the trend will re-set to a trading range, [d] in an
intermediate term uptrend {1939-2731} [e] a long term uptrend {797-2145}, [e] back
above its September highs one day after voiding a prior break; I am scoring it neutral,
subject to follow through.
Volume was up; breadth
positive. The VIX (14.4) was down 13%, finishing [a] below its 100 day moving average,
now resistance, [b] within a short term downtrend and [c] in intermediate term
and long term trading ranges. Below 13,
it will again represent good portfolio insurance.
The long
Treasury was up fractionally, ending above its 100 day moving average, still
support, within very short term, short term and intermediate term trading
ranges and continues to develop a pennant formation.
GLD dropped, closing
[a] above its 100 day moving average, now support [b] in a short term uptrend
[c] in intermediate and long term downtrends.
In my opinion, it needs to successfully challenge the upper boundary of
its intermediate term downtrend to conclusively establish that a bottom has
been made.
Bottom line: yesterday’s
pin action didn’t leave a lot of doubt about where the momentum lies. To be sure, the time element still remains in
the Averages break of their 100 day moving averages as well as the S&P move
above the upper boundary of its short term downtrend. However, volume and breadth support yesterday’s
price move.
That said, bonds
and gold seemed unfazed, which is a bit surprising. In addition, the dollar was strong,
reflecting the currency implications of Draghi’s news conference yesterday
(more QE; see below). That is not great
news for corporate profits; again meaning the E part of P/E will likely continue
to suffer---seemingly not great for stocks.
The odds of an assault
by the Averages on their all-time highs have taken another step higher;
although I continue to believe those challenges will be unsuccessful.
Fundamental
Headlines
Yesterday
was busy on the economic data release front: the good news was that weekly
jobless claims rose less than anticipated, September existing home sales were
strong and the Kansas City Fed manufacturing index was off less than projected;
the bad news was September leading economic indicators fell and the September
Chicago national activity index was considerably worse than expected. So something of an upbeat day which also translates
into the first plus week of dataflow in the last eight. On a less positive note, the primary
indicators were mixed---2 up and 2 down.
However,
two developments put those numbers in the rear seat.
(1)
great earnings reports from industry leaders: McDonalds,
3M and after the close tech giants Amazon, Alphabet [formerly Google] and
Microsoft.
(2)
round three of Draghi’s
‘whatever is necessary’ theme. In a
press conference yesterday morning, he suggested that more QE and possible
negative interest rates were on the table for the ECB’s December meeting. ‘More’ as in ‘whatever is necessary’ hasn’t
worked so far; so the only obvious solution is to double down.
Goldman on Draghi’s comments (medium):
The paradox of
negative interest rates (medium and a must read):
And when I say
double down, not only does it mean easier money for the EU but also [a] likely raises
the odds that other central banks will follow suit {see China below}, [b] puts
our ol’ buddy Janet in a bit of a quandary and [c] causes US companies more
currency translation problems---something this earnings season points out that
they don’t need more of.
Of course, the
last thing the Fed wants is to cause US companies even more currency problems and/or
drive the dollar still higher because that just raises the chance of a
recession in the US. But we may have
reached the point at which what the Fed wants [or can control] doesn’t matter. In short, it may no longer have the choice of
or threat of a rate hike.
***overnight,
the October EU Markit composite PMI was better than expected as were many of
the sub-categories as well as the individual country aggregate and sub-category
numbers; the Bank of Japan lowered its country’s 2015 GDP growth forecast;
South Korea reported a better than anticipated third quarter GDP; and last but
not least, China lowered key interest rates as well as bank reserve
requirements.
Bottom line:
given the fact that the Fed is largely comprised of a bunch of spineless doves,
not having to worry about whether or not to raise rates may not make a
difference. But my point is that it has allowed
itself for too long to be controlled by about a bunch of whiney butt, wimp
investors who cry when rate hikes are threatened and may soon find itself in a
position where it can’t raise rates in the face of another potential round of aggressive
monetary easing (competitive devaluation) by multiple central banks. The risk is that we may find ourselves in the
final stage of QEInfinity being pushed to its logical extreme:
deflation/recession.
The
QE fantasy world (medium and a must read):
Net, net, don’t
chase stock prices at these levels.
Indeed, use the strength to take some profits in winners and/or
eliminating investments that have been a disappointment.
The
latest from Doug Kass (medium):
The
latest from David Stockman (medium):
The
latest from Lance Roberts (medium):
Investing for Survival
What
to do if you are under invested and retiring (medium):
News on Stocks in Our Portfolios
Procter
& Gamble (NYSE:
PG): FQ1 EPS of
$0.98
beats by $0.03.
Revenue of $16.53B
(-11.9% Y/Y) misses by $640M.
V.F. (NYSE:
VFC): Q3 EPS of $1.07
misses by $0.05.
Revenue of $3.61B
(+2.6% Y/Y) misses by $70M.
C. R. Bard
(NYSE:
BCR): Q3 EPS of $2.28
beats by $0.05.
Revenue of $865.7M
(+4.3% Y/Y) beats by $12.77M
Microsoft
(NASDAQ:
MSFT): FQ1 EPS of
$0.67
beats by $0.08.
Revenue of $21.7B
(-6.5% Y/Y) beats by $670M.
AT&T
(NYSE:
T): Q3 EPS of $0.74
beats by $0.05.
Revenue of $39.1B
(+19% Y/Y) misses by $1.32B.
Franklin
Resources (NYSE:
BEN): FQ4 EPS of
$0.59
misses by $0.18.
Revenue of $1.87B
(-13.4% Y/Y) misses by $30M.
Economics
This Week’s Data
September
existing home sales rose 4.7% versus expectations of a less than 1% increase.
September
leading economic indicators fell 0.2% versus estimates of being unchanged.
The
October Kansas City Fed manufacturing index came in at -1 versus -8 recorded in
September.
Other
The
401k crisis is getting worse (medium):
Auto loans join student
loans as a matter of concern (medium):
Politics
Domestic
The Club for
Growth on Ben Carson (short):
Will Puerto Rico
get bailed out (medium)?
International
The
rise of Portuguese defiance (medium):
