The Morning Call
11/4/16
I have family business out of
town this weekend. No Closing Bell.
The
Market
Technical
After an early
valiant attempt to rally, the indices (DJIA 17930, S&P 2088) closed down on
the day. Volume declined and breadth was
negative, getting even more oversold. The
VIX was up another 13%, closing above its 100 day moving average (now support),
above its 200 day moving average (now support), in a very short term uptrend
and broke above the upper boundary of its short term downtrend. If it remains there through the close next
Monday it will reset to a trading range.
The VIX continues to send a more bearish message than is reflected in
the indices. Sooner or later, something
has to give, i.e. either stocks or the VIX plummeting.
The Dow ended
[a] below its 100 day moving average, now resistance; [b] above its 200 day moving average, now
support, [c] within a short term trading range {17092-18693}, [c] in an
intermediate term uptrend {11544-24389} and [d] in a long term uptrend
{5541-19431}.
The S&P
finished [a] below its 100 day moving average, now resistance, [b] above its
200 day moving average, now support, [c] within a short term trading range
{1995-2193}, [d] in an intermediate uptrend {1974-2576} and [e] in a long term
uptrend {862-2400}.
The long
Treasury declined, closing below its 100 day moving average (now resistance),
below its 200 day moving average (now resistance), below a key Fibonacci level
and in a developing a very short term downtrend. Granted these are all short term
problems. But (1) other segments of the
fixed income market are in much worse technical shape and (2) TLT is nearing
the lower boundaries of its short and intermediate term uptrends and will
likely challenge them.
The unintended
consequences of Dodd Frank (medium):
GLD continued to
make slow upward progress, finishing above its 200 day moving average and one
key Fibonacci level. However, it is
below its 100 day moving average (resistance) and within a short term
downtrend. It also unsuccessfully challenged
the next Fibonacci level for a second day.
I noted yesterday that this is either a sign of the loss of momentum or
just a pause in a one month uptrend.
When we know, it will tell us more about the strength of the buying
behind that one month uptrend.
Bottom line:
despite being very oversold, the indices could only manage a weak early morning
rally and then fell for an eighth day in a row---a pretty pathetic response. So I am assuming more downside even if there
is another attempt to correct the oversold condition. The next visible support is their 200 day
moving averages, which are not that far away.
If those don’t hold, look for a challenge of the lower boundaries of
their short term trading ranges.
In addition, the
VIX seems to be indicating that there is something very wrong happening or
about to happen that isn’t getting reflected in the Averages pin action. Of course, it could be a false flag and
reverse itself as quickly and violently as it spiked. I have no insight as to which is the
case.
Fundamental
Headlines
Yesterday’s
US economic releases were weighed to the upside: third quarter nonfarm
productivity and unit labor costs, the October Markit services PMI and
September factory orders were better than anticipated while weekly jobless
claims and the October ISM nonmanufacturing index were below expectations. That puts this week evenly divided among all
indicators as well as the primary indicators.
However, we still have the October nonfarm payrolls number to be
released this morning; and that could provide a tilt. Still with one stat deciding the score for
the week, whatever the outcome, it would not be pronounced.
***overnight,
virtually all the EU latest PMI numbers have been revised lower; this includes
not only the eurozone aggregate stats but also the individual country data.
Overseas,
the Bank of England left its current monetary policy unchanged but worried that
the falling pound could force its hand in raising rates. If that occurs, it would mean that both the
Fed and the BOE tightening could be tightening at the same time---causing even
more heartburn for the QE euphoria crowd. Increasing the economic uncertainty
in the UK, a court ruled that the government could not proceed with the Brexit
without approval from Parliament. While
the decision will likely be appealed, it still adds another political problem
for the Markets to worry about.
Here
are links to two of the issues about which the Markets have been worrying of
late:
Are investors
missing the Chinese currency devaluation? (medium):
Why
we should worry about Deutschebank (medium):
***overnight,
Fitch put Deutschebank’s debt on negative watch.
Bottom line: the
Fed’s optimistic ambiguity aside, the economic numbers are not nearly as
positive as it is portraying them. And
that is just one of the problems we face.
Another is the confusion on whether this means a December rate
hike. Certainly, the bond markets are
telling us that it is coming. However,
problem #2 is not that a rate hike will have an impact on the economy, because
it won’t. It, I believe, will have a big
effect on the Markets because QEInfinity has been primarily responsible for the
current overvaluation of stocks. And
that leads to problem #3: it may not matter whether the Fed raises rates
because stocks are so overpriced, there are too many other candidates for the mean
reversion trigger for it not to happen anyway---a totally irresponsible global
central bank monetary policy; political/fiscal chaos in the US whoever wins the
election; dissention within OPEC; a weak EU banking system; mounting
international tensions between superpowers---to name just a few.
Take the current opportunity to build your
cash position by lightening up on your winners and selling your losers.
My
thought for the day: closing out my
recent focus on having a Sell (Stop Loss) Discipline, I leave you with this
thought: It’s not the ones that you sell that keep going up that matter (your
portfolio doesn’t know what it doesn’t own). It’s the one that you don’t sell
that keeps going down that does (the key to long term performance is avoiding
big losses).
Investing for Survival
Keeping
it simple.
News on Stocks in Our Portfolios
Revenue of $2.2B (+1.4% Y/Y) beats
by $330M.
Economics
This Week’s Data
The
October Markit services PMI came in at 54.8 versus the September reading of
53.9.
September
factory orders were up 0.3% versus expectations of up 0.2%.
The
October ISM nonmanufacturing index was reported at 54.8 versus forecasts of
56.1.
October nonfarm payrolls
grew 161,000 versus consensus of plus 178,000.
The
September trade deficit was $36.4 billion versus projections of $38.9 billion.
Other
The
global slowdown in trade (medium):
Politics
Domestic
International War Against Radical
Islam
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