The Morning Call
2/11/16
The
Market
Technical
The indices
(DJIA 15914, S&P 1851) closed down slightly yesterday on declining volume;
volatility remained at an elevated level and breadth was poor.
The Dow ended [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 {16787-17523}, [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] below the lower boundary of its
short term downtrend {1900-1987}, [d] below the lower boundary of its
intermediate term trading range {1867-2134} for the third day; if it remains
there through the close today, it will reset to a downtrend}, [e] in a long
term uptrend {800-2161} and [f] still
within a series of lower highs.
The long
Treasury was up strong, ending above the upper boundary of its short term
trading range for the third day, thereby resetting to an uptrend.
Oil traded near
its recent price lows.
On another huge volume day, GLD was up,
closing [a] above the upper boundary of its short term trading range; if it
remains there through the close on Friday, it will reset to an uptrend and [b]
within an intermediate term trading range.
Bottom
line: the S&P continues its
challenge of the lower boundary of its intermediate term trading range (though
the Dow remains above its comparable level).
In fact, it attempted to trade back above 1867 seven times intraday
yesterday but failed every time---a sign of the increasing weakness of this
boundary as support. If this break is
confirmed today, then my attention goes to the Dow and its ability to hold
above 15842. As I noted yesterday,
1867/15852 are the technical lines in the sand due to the lack of any near in
visible support.
The long
Treasury reset to a short term uptrend; an indication that bond investors are
worried about a recession and/or credit problems overseas.
Gold continues
to smoke, now challenging the upper boundary of its newly reset short term
trading range on big volume. At the open
today, our Portfolios were establish a 2% position in the Gold Miner ETF
(GDX---$17.14). Remember, gold has
always been a trading (risk hedging) position; hence, it is subject to a very
tight Stop Loss ($15.69)
Fundamental
Headlines
There
were two minor US economic datapoints released yesterday: weekly mortgage and
purchase applications were up, the more important latter just barely. Plus the December federal budget was in
surplus due primarily to a timing function of recognizing cash flows. There were no international economic stats.
***overnight,
the Bank of Sweden lowered key rates from -.35% to -.50%.
Of
course, the big news event of the day was the first of two Yellen appearances
before congress this week---the second being today. I have included the text of her official
address below if you care to wade through it.
My take was, to quote George Costanzo, ‘I believe that I can sum it up in
one word….nothing!’. Yellen walked a
fine line between maintaining that the economy was doing just fine so rate
hikes are still on the table, but not fine enough to likely warrant a March
rate hike. In short, it was a dose of
Casper Milquetoast pabulum.
The
text of Yellen’s comments if you want to read it (medium):
Hilsenrath
on Yellen (short):
Both
monetary and fiscal policy have failed the economy (short):
Another
theme running through yesterday’s internet and media narrative was the rising
risk of yet another financial crisis. I
mentioned this factor in yesterday’s Morning Call as one which is only now
starting to get the proper attention.
Here are the best links I could find on the subject:
Widening
credit spreads (short):
And
the problems they pose (medium):
Plus
a flattening Treasury yield curve (short):
These
concerns (especially as regards the EU banks) provoked a reaction from the ECB
that they were considering buying the common stocks of the banks along with
other easing moves. You know that has to
end well.
Bottom line: the
economy continues to display weakness.
The global economy isn’t providing any support; and indeed, it has
weakened to the point that credit default spreads are widening in both the
sovereign and bank securities. This is
just another manifestation of the risk off trade that is spreading through
multiple markets. To top it all off, the
Fed’s monetary policy is doing its best imitation of a windsock---which leaves
a vacuum that the Markets can fill if they decide to. It is not a plus for stock prices.
I am not
suggesting that investors run for the hills.
I am suggesting that in any rally that from current levels (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’.
Oil has never been the problem (medium):
Are
there bear markets without recessions?
Yes, but ‘without recessions’ is a big assumption at present (short):
What
follows drawdowns of 10% or more (short):
Buy
high/sell low (medium):
Investing for Survival
Short
term decision on long term capital.
Economics
This Week’s Data
The
January US budget was in surplus $55 billion; however, that was largely a
function of the calendar. Nevertheless,
the year to date budget deficit is down roughly 3% on a year over year basis.
Weekly
jobless claims fell 16,000 versus expectations of a 4,000 decline.
Other
More
on the mounting global debt problem (medium):
Politics
Domestic
The Supreme
Court and the EPA (short):
International War Against Radical
Islam
The
latest (confusing) update from Syria (medium):
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