The Morning Call
The Market
Technical
The
indices (DJIA 15168, S&P 1690) continue under the control of our ruling
class, selling off on no action from congress on the budget/debt ceiling. The Dow finished within its short term
trading range (14190-15550) and right on its 50 day moving average. The S&P remains within its short term
uptrend (1682-1836). Hence, the Averages
continue to be out of sync on a short term basis.
Both of the
Averages are within their intermediate term uptrends (15040-20040, 1603-2189)
and long term uptrends (4918-17000, 715-1800).
Volume was up
slightly; breadth was terrible. The VIX
jumped 16% but closed within its short term trading range and its intermediate
term downtrend.
The long
Treasury was off fractionally, finishing within its short term trading range
and its intermediate term downtrend.
GLD was up but
remains below the upper boundaries of its very short term, short term and
intermediate term downtrends and continues to develop the right shoulder of a
head and shoulders pattern.
Bottom
line: pin action schizophrenia continues
in the grips of the minute to minute news flow out of our elected reps. Despite the seeming mindless game of chicken,
it is historically business as usual and hence not surprising. These clowns are getting down to the wire, so
we are apt to get some sort of compromise in the next 48 hours. Nevertheless, given investors relative
sanguine response to the DC mind games, it wouldn’t surprise me if we get a
‘sell the news’ reaction when, as and if a compromise is reached on the
budget/debt ceiling negotiations.
I noted
yesterday that I have been closely watching
where the short term rally topped out. With the Market down yesterday, we
have to see if the Market could be creating a lower high and thereby, setting
up a head and shoulders formation. However,
with stocks reaction to any compromise
still ahead, any downside follow through remains in question.
Nonetheless, if
equities move up in price and any of our stocks trade into their Sell
Half Range
Fourth
quarter market performance in years in which the market was up in September and
up year to date at the end of September (short):
90%
up days are bullish (short):
Breadth
after the recent rally (short):
Will
we get a ‘sell on the news’ dip if an agreement is reached (medium):
Institutional
bearishness spikes (short):
The
secular bear market has only just begun (medium):
Fundamental
Headlines
Of
course, the budget/debt ceiling talks held center stage. At this writing, the house which was working
on a new bill has given up and the senate which had put its negotiations on
hold, is now back at work. Investors
didn’t like this news but the sell off associated with the lack of success in
these negotiations was relatively mild---reflecting investor assumptions that
ultimately a compromise will be reached.
Bottom line: as
you know, I believe that this whole
process will end with some sort of half-assed-kick-the-can (entitlement and tax
reform)-down-the-road agreement that will keep the ruling class in business but
do little for you and me---something of a habit with these guys. The question is, will this marginally
worthwhile agreement do anything for business and consumer confidence? I seriously doubt it.
I also believe
that even if no compromise is reached, the US
will not default on its debt. The numbers (cash flow versus debt service)
simply don’t support a default unless a
conscious political decision is made to do so; although clearly that doesn’t
rule suffering in some quarters.
Whatever, the
outcome, I think that business and
consumer confidence has been damaged which will in turn act as a governor on
future investment and consumption (read economic growth).
Finally, as I noted last week, because no one
is expecting a failure to reach a budget/debt ceiling compromise, if it
happens, the immediate Market reaction could be very ugly.
A history of
sovereign defaults (short):
Mohamed
El Erian on the shutdown (medium):
The
default has already begun (I am not so worried about the government employees
being laid off---that is something that has to be done to get spending under
control---medium):
George
Will on the sequester and the budget/debt ceiling negotiations (medium):
The
way out---November 2014 (short):
A
primer on US credit default swaps (medium):
The
latest from Jim Rogers (4 minute video):
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