The Morning Call
1/26/16
The
Market
Technical
The indices
(DJIA 15882, S&P 1877) had another bad day.
The Dow closed [a] below its 100 day moving average, now resistance, [b]
below its 200 day moving average, now resistance, [c] below the lower boundary
of a short term downtrend {16872-17620}, [c] within 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 day moving average, now resistance, [b] below its
200 day moving average, now resistance [c] below the lower boundary of a short
term downtrend {1925-2014}, [d] in an intermediate term trading range
{1867-2134}, [e] in a long term uptrend {800-2161} and [f] still within a series of lower
highs.
Volume was down---a
small plus; breadth deteriorated. The
VIX was up 8% and ended [a] above its 100 day moving average, now support and
[b] in short term, intermediate term and long term trading ranges.
The long
Treasury rose, finishing above its 100 day moving average, now support and
within short term and intermediate term trading ranges.
GLD was up 1%, ending
right on its 100 day moving average (a ray of promise?), now resistance and [b]
within short, intermediate and long term downtrends.
Bottom line: as
rough as yesterday’s pin action was, I don’t think that the oversold bounce is
necessary over. The key is how the
indices behave at the 15842/1867 level; and clearly, they are not that far
away. If those levels hold, then we turn
our attention to the resistance levels I mentioned last Friday. If not, then almost surely the bounce is over
and most likely a bear market will have begun.
Somewhat scarily, there is only minor visible support (14256/1526) below
15842/1867 until prices hit the 11000/1077.
Caution.
Some
history on the January Barometer (medium):
Fundamental
Headlines
This
week got off to a rocky start. In the
US, the Dallas Fed reported a horrible January manufacturing index. Overseas, the 2015 Russian economic growth came
in down
3.7%.
On the other
hand, the Bank of China continued to inject liquidity into its markets; and the
Bank of Japan said that it would also do so if needed. Which leads me to what will likely be this
week’s big event: the FOMC meets. That should
make Wednesday interesting, especially if the narrative remains somewhat
hawkish in the face of all the QE talk from the rest of the major global
central banks and the continued turmoil in the Market.
***overnight,
the Bank of China again injected funds into its financial system; however,
stocks plunged. Draghi chastised the
markets for not believing his ‘whatever is necessary’ routine.
Bottom line: no
improvement in the US or global economic news.
Not helping matters are the fruitless efforts of most of the global central
banks to stimulate growth but succeed only in propping up sick
companies/industries and raising the volatility of asset prices. I encourage you to read both of the following
articles which address how declining oil prices are having a negative impact on
global capital flows and how that is effecting US stock prices.
The Eurodollar money
base is shrinking (medium and a must read):
And
the spread between junk bonds and Treasuries is widening (medium and also a
must read):
I am not
suggesting that investors run for the hills.
I am suggesting that on any rally that (1) they take some profits in
winners that have held up during this decline and/or eliminate investments that
have been a disappointment and (2) they lose the notion of ‘buying
The
latest from John Hussman (medium):
The
latest from Jim Bianco (medium):
ETF Highlight
Van Kampen Municipal Opportunity
Trust (VMO) is a closed-end management investment company. Its investment objective is to provide a high
level of current income exempt from federal income tax, consistent with the
preservation of capital.
The fund invests approximately
98% of its assets in bonds and may be considered for investors seeking a Municipal
- National strategy. The Invesco
Municipal Opportunity has returned an annual rate of 6.26% since inception.
More recently, the fund has generated a total return of 5.69% in the last five
years, 2.40% in the last three years, and 17.79% in the last year. In 2015, VMO returned 13.54%. Downside risk
has been below average, has a three year standard deviation of 11.8% and fund
has had moderate volatility in its monthly performance over the last 36 months.
As VMO is a closed end fund, it has no front end or back end load. The ETF Portfolio owns a full position in
VMO.
Investing for Survival
The
importance of growth rates:
News on Stocks in Our Portfolios
Revenue of $2.48B
(-1.2% Y/Y) beats by $10M
Revenue of $7.3B
(-5.4% Y/Y) beats by $90M
Johnson
& Johnson (NYSE:JNJ) Q4 results ($M): Total Revenues: 17,811 (-2.4%);
Consumer: 3,320 (-7.9%); Pharmaceutical: 8,064 (+0.8%); Medical Devices &
Diagnostics: 6,427 (-3.3%).
Revenues by region:
U.S.: 9,293 (+8.0%); Europe: 4,002 (-12.2%); W. Hemisphere ex-U.S.: 1,442
(-19.1%); Asia Pacific & Africa: 3,074 (-7.1%).
Sample of sales by
product/segment: OTC: 1,045 (-2.6%); Remicade: 1,680 (+0.5%); Orthopedics:
2,423 (-0.7%); Surgery: 2,413 (-2.5%); Stelara: 742 (+36.1%).
Net Income: 3,215
(+27.5%), EPS: 1.15 (+29.2%); Non-GAAP Net Income: 4,043 (+11.9%); Non-GAAP
EPS: 1.44 (+5.1%).
2016
Guidance: Revenues: $70.8 - 71.5B;
Non-GAAP EPS: $6.43 - 6.58.
Revenue of $16.92B
(-8.5% Y/Y) misses by $20M
Revenue of $6.34B
(-3.5% Y/Y) beats by $120M
Economics
This Week’s Data
The
January Dallas Fed manufacturing index came in at -34.6 versus expectations of
-14.0.
Month
to date retail chain store sales declined from the prior week’s results.
Other
David
Stockman on our auto loan problem (medium):
Politics
Domestic
A 1990 Playboy
interview with Trump. You can skip the
author’s preamble and go straight to the interview (medium):
International War Against Radical
Islam
More
on Europe’s immigration problem (medium):
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