The Morning Call
12/15/15
The
Market
Technical
The indices
(DJIA 17368, S&P 2021) rallied off a very oversold condition yesterday. The Dow ended [a] bounced off its 100 moving
average, which represents support, [b] below its 200 day moving average for the
fourth day; it will now revert to resistance, [c] within a short term trading
range {16919-18148}, [c] in an intermediate term trading range {15842-18295},
[d] in a long term uptrend {5471-19343}, [e] and still within a series of lower
highs.
The S&P
finished [a] below its 100 moving average, which represents support; if it
remains there through the close today, it will revert to resistance, [b] below
its 200 day moving average for the fourth day in a row; it will now revert to
resistance, [c] back above the lower boundary of its a short term trading range
{2016-2104}, negating Friday’s break, [d] in an intermediate term uptrend {1980-2773},
[e] a long term uptrend {800-2161}, [f] still within a series of lower highs.
Volume rose;
breadth improved. The VIX (22.7) was up 7%,
ending [a] above its 100 day moving average, now support, [b] within short term,
intermediate term and long term trading ranges.
The long Treasury
fell, closing above its 100 day moving, now support and within very short term,
short term and intermediate term trading ranges.
Oil stabilized,
at least for a day, ending within short term, intermediate and long term
downtrends.
GLD was declined
1.2%, finishing [a] below its 100 day moving average, now resistance and [b]
within short, intermediate and long term downtrends.
Bottom line: the
Averages bounced somewhat weakly off an oversold condition. However, they continue to challenge support
levels. Given this tepid pin action, it
is not at all clear to me where follow through will materialize (in either
direction). Making matters all the more
uncertain is the rate decision forthcoming from FOMC meeting today and tomorrow
and the huge options expiration on Friday.
On a somewhat brighter note, the Santa Claus rally usually kicks in the
last two weeks of December.
Net, net, I have
no feel for the short term direction of the Market. Longer term, the numerous divergences below the
Market surface, the turmoil in the high yield debt market which historically
has anticipated problems in the stock market along with our assessment that
stocks are very richly valued I believe argues against a successful challenge of
the upper boundaries of the indices long term uptrends and for a decline to
significantly lower levels.
The
‘free lunch’ trade (short):
Fundamental
Headlines
No
US datapoints were reported yesterday; although this will, nonetheless, be a
busy week for stats capped by the Wednesday FOMC rate decision. Overseas, the Bank of Japan manufacturing
survey remained in plus territory; however, the Chinese yuan continued to get
hammered.
***overnight,
November UK inflation rose 0.1%, the central bank of Sweden kept its key
lending rate unchanged at -0.35% and China allowed the further depreciation in
the yuan.
Yesterday’s
paucity of economic data notwithstanding, the trend, as I keep documenting, has
not been good. In other words, the economic
evidence supporting the Fed rate decision, arguably the most important event
this week, overwhelmingly points to no increase in rates. However, no one at the Fed seems to want to
be confused by the facts. Making matters
all the more difficult to analyze is that (1) a 25 basis point rise is not apt
to have any impact on the economy [which argues for the Fed to raise rates irrespective
of the economic dataflow] and (2) the Fed’s economic centered narrative
notwithstanding, everyone knows that it is in fact focused on the Markets---and
with the stock market taking some body blows and the high yield market in
disarray, there is some reason to believe that the Fed could chicken out of its
most well publicized rate hike in history.
One way in which the
problems in the credit market impact stocks (medium):
Bottom line: If your head isn’t spinning in the midst of all
these cross currents, you are a better man (woman) than I. However, forgetting the byzantine logic of
the Fed, the facts on the ground are that the economy is stumbling at best, the
stock market internals lack any consistency and the high yield debt market is in
a shambles, which as I noted above, has historically preceded a similar
performance in equities.
I am not
suggesting that investors run for the hills.
I am suggesting that they use the Market strength to take some profits
in winners and/or eliminating investments that have been a disappointment.
Update
on the Buffett Valuation Indicator (medium):
Economics
This Week’s Data
November
CPI was reported at 0.0%, in line; ex food and energy, it was +0.2%, also in
line.
The
December New York Fed manufacturing index came in at -4.59 versus forecasts of
-7.0.
Other
Politics
Domestic
International War Against Radical
Islam
