The Morning Call
2/2/16
The
Market
Technical
The indices
(DJIA 16449, S&P 1939) edged slightly lower yesterday, though there was no
respite from the intraday volatility. 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 {16833-17588}, [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 day moving average, now resistance, [b] below its
200 day moving average, now resistance [c] within a short term downtrend {1914-2003},
[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 fell;
breadth was mixed. The VIX was down 1%
but ended [a] above its 100 day moving average, now support; however, the MA is
declining, detracting from its strength as support and [b] in short term,
intermediate term and long term trading ranges.
The long
Treasury declined, finishing above its 100 day moving average, now support and
within short term and intermediate term trading ranges.
GLD (108) rose
1%, remaining [a] above its 100 day moving average, now support [b] right on the upper boundary of its
intermediate term downtrend {108} and [c] very near the upper boundary of its
short term downtrend {108.5}.
Bottom line: the
S&P tried intraday to move back below the 1928 Fibonacci retracement level
but couldn’t succeed. That converts this
level from resistance to support. That
suggests additional upside, potentially to the upper boundary of its short term
downtrend.
GLD continues to
attempt a turn around. It is above its
100 day moving average and making a run at busting through two proximate
resistance levels which will likely not be an easy feat. Still the challenge is on; if successful, GLD
should offer an attractive buying opportunity.
Fundamental
Headlines
Even
though there were a number of near misses in yesterday’s stats, the misses were
all on the negative side. Plus, there
was one really poor number. December
personal income was in line, but personal spending, the PCE deflator, the
January manufacturing PMI and the January ISM manufacturing index were all
slightly below consensus. December
construction spending was well below estimates.
So a not so hot start to the week.
Overseas,
the stats were ugly: January Chinese manufacturing and service indices were
disappointing and January South Korean exports and imports were terrible.
Much
is still being made within the chattering class of last Friday’s surprise move
by the Bank of Japan to negative interest rates. I continue to believe that it will do more
harm than good. Here are some who agree:
Mohamed
el Erian on central bank monetary policy (medium and today’s must read):
More
criticism from Ed Yardini (medium):
Finally,
John Hussman of the futility of the Bank of Japan’s actions (medium):
Bottom line: despite
the Herculean effort by the almost every central banker except our Fed to buy
an economic recovery, it clearly isn’t working.
A theme that I and others have harped on for the last four years. Why these guys believe that more of the same
will produce a different outcome is a complete mystery to me.
The economic
data both here and abroad have been and remain dismal; the risk of recession
continues to climb. In the meantime,
stocks are overvalued and will become even more so as the aforementioned weak
economic numbers become manifest in earnings estimates downgrades. Or even worse, those forecasts are missed.
I am not
suggesting that investors run for the hills.
I am suggesting that in this 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 dips’.
2016
S&P earnings forecasts (short):
Economics
This Week’s Data
January
manufacturing PMI was reported at 52.4 versus expectations of 52.6.
The
January ISM manufacturing index came in at 48.2 versus forecasts of 48.3.
December
construction spending rose 0.1% versus estimates of +0.6%.
Other
Rot
in the Chinese banking system (medium):
Update
of big four economic indicators (medium):
Politics
Domestic
John Cleese on
political correctness (2 minute video):
International War Against Radical
Islam
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