The Morning Call
1/7/16
The
Market
Technical
Another rough
day for the indices (DJIA 16906, S&P 1990).
The Dow ended [a] below its 100 moving average, which represents support;
but if it remains there through the close on Friday, it will revert to
resistance, [b] below its 200 day moving average, now resistance, [c] below the
lower boundary of its short term trading range {16919-18148}; if it remains
there through the close on Friday, it will reset to a downtrend, [c] in an
intermediate term trading range {15842-18295}, [d] in a long term uptrend
{5471-19343}, [e] and has now made yet another lower high.
The S&P
finished [a] below its 100 moving average for the third day, which now reverts
to resistance, [b] below its 200 day
moving average, now resistance, [c] below the lower boundary of its short term
trading range {2016-2104}; if it remains there through the close on Friday, it
will reset to a downtrend, [d] below the
lower boundary of its intermediate term uptrend {1998-2791}; if it remains
there through the close next Monday, it will reset to a trading range, [e] a
long term uptrend {800-2161}, [f] and in a very short term trend of lower highs.
Volume rose; breadth
declined. The VIX (20.4) was up 5%,
ending [a] above its 100 day moving average, now resistance; if it remains there
through the close on Friday, it will revert to support, [b] within short term,
intermediate term and long term trading ranges.
The long
Treasury rose 1.3%, closing above its 100 day moving average, now resistance;
but if it remains there through the close on Friday, it will revert to support. It remains within very short term, short term
and intermediate term trading ranges.
GLD was up 1.5%,
still finishing [a] below its 100 day moving average, now resistance and [b]
within short, intermediate and long term downtrends.
Bottom line: the only difference between yesterday and
Monday is that even more key support levels are being challenged and the magnitude
of the breaks are even larger. As always
follow through is key; all those challenges must be confirmed before getting
too ‘beared up’. If they do break, the
only visible support is roughly 6-8% lower (15842/1867). Plus the Averages will be confirming our
worries about, the continuing development of a topping formation, the numerous
Market divergences and our belief that stocks are very richly valued.
Global
bear market has already begun (medium):
Even
financials are in trouble (short):
Fundamental
Headlines
This
week’s economic data remains dismal, yesterday: weekly mortgage and purchase
application were awful, both the PMI services index and the ISM nonmanufacturing
index were disappointing and factory orders were down (though they were in
line). The positive news included a
lower November US trade deficit and a surprisingly strong ADP private payrolls
report. While the latter is
unquestionably a plus, it is nonetheless worrisome that both the service sector
indicators were negative---the ISM index for the second month in a row. Remember the economic bull case has been
grounded in the argument that while manufacturing may be weak, services (1) have
been strong and (2) they represent a much larger portion of the economy. Clearly that notion must be questioned.
In addition, the
latest FOMC minutes were released. Three
comments: the FOMC (1) did not have as much conviction in raising rates as many
thought at the time [with the economic numbers as poor as they have been, how
could it not been made with trepidation?], (2) nonetheless, mouthed the appropriate
amount of happy talk about the economy [whistling through the graveyard] and
(3) provided little ‘data dependence’ guidance defining the path to further
rate hikes [small wonder].
FOMC
minutes
Hilsenrath
on the FOMC minutes (medium):
Overseas,
the Chinese allowed the yuan to decline even further, fueling the competitive
devaluation race and perhaps indicative of new problems in the Chinese
financial system---and on a not so positive technical note, the indices and the
yuan have been highly correlated over the last year, i.e. lower yuan = lower US
stock prices.
Finally,
under category of ‘this is all we need’ the North Koreans claimed that they had
successfully tested a hydrogen bomb. The
media made a much bigger deal of this than I would have thought. Number one, these clowns lie habitually; so
we can’t be sure that they tested a hydrogen bomb. Number two, they generally don’t act without
the approval of the Chinese and I can think of no reason for the Chinese to
want to start a nuclear war. Number
three, all that the North Koreans have really done is replace one kind of
nuclear device with a more technologically advanced one. Finally, if you are going to worry about some
nut job detonating a nuclear device, worry about radical Islam.
***overnight:
(1)
the Chinese yuan continued to slide and stocks traded
limit down,
And:
(2)
Eurozone reported a number of upbeat economic stats:
economic confidence, business climate index, industrial confidence and
unemployment; retail sales were less than anticipated,
(3)
Iran accused Saudi Arabia of bombing its embassy in
Yemen.
Bottom line: the economy is not improving. The data supports that notion. And reading the FOMC minutes suggests that, the
happy talk notwithstanding, the Fed has a pretty good idea of the same. Not helping matters, energy prices continue
to get whacked (no, Virginia, lower oil prices are not an unmitigated positive)
and the declining yuan is not helpful for either the global economy (competitive
devaluations) or the US stock market.
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.
George
Soros is worried (short):
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
December PMI services index came in at 54.2 versus November’s reading of 56.1.
The
December ISM nonmanufacturing index was reported at 55.3 versus expectations of
56.2
November
factory orders were down 0.2%, in line though down big from October.
Weekly
jobless claims fell 10,000 versus projections of a 15,000 decline.
Other
Politics
Domestic
The next step in
government supervision of our lives? (medium):
International War Against Radical
Islam
Hillary
on Benghazi (6 minute video):
Libya
now in turmoil (medium):
David Stockman on the House of Saud
(medium and a must read):
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