The Morning Call
The Market
Technical
The indices
(DJIA 15024, S&P 1613) continued their rebound yesterday, closing within
their intermediate term (14244-19244, 1511-2099) and long term uptrends
(4783-17500, 688-1750).. Nevertheless,
they remain below the downtrend off the May 22 high (current intersects: 15270,
1640) as well as their 50 day moving averages (15024, 1618) and are in search
of lower boundaries for new short term
trading ranges (14190 [?]-15550, 1576 [?]-1687).
Volume
was down; breadth improved. The VIX
fell, finishing within its intermediate term downtrend but near the lower
boundary of a very short term uptrend---a break of the latter trend would be a
positive for stocks. It has yet to mark
an upper boundary of a new short term trading range.
GLD
was whacked again and remains outside of all boundaries of all major
trends. It continues to have a very
broken chart.
Bottom line: I
noted this yesterday and I will repeat today---despite a strong rally, nothing
in the charts of either the Averages or the stocks in our Universe (over 90%
remain in downtrends off their May 22 highs) suggest that the short term
correction is over. The Dow closed right
on its 50 day moving average and the S&P is close. If the indices break this resistance level
that will be the first sign that this latest move is something more than an
oversold bounce.
Fundamental
Headlines
Yesterday’s
economic data was neutral: weekly jobless claims fell slightly, May personal
income was better than expected while spending fell a little short, the Kansas
City manufacturing index was a big disappointment. While not as positive as the general data
flow this week, there is nothing here that would alter our forecast.
The
main headlines of the day was the continuing stream of Fed officials out in
public attempting to jawbone Market expectations off of Bernanke’s ‘tapering’
comments. More speeches are due to
today; and I assume that they will continue until (when, as and if) investors’
regain their former faith in QEInfinity.
Certainly, the
Market rally of the last couple of days suggests that they are achieving some
success. However, as you know, I think
that Bernanke’s comments awakened the Markets out of a QE stupor and
re-inserted the concept of risk into Fed policy. I am not saying that to argue for a dive in
equity prices; I am saying risk premiums are going up and that will weigh on
valuations.
I am also not
saying that QEInfinity won’t continue.
Given the current economic data flow, there is plenty of reason to doubt
that unemployment or inflation will get anywhere near the targets Bernanke
mentioned in his ‘tapering’ comments.
What I am suggesting is that investors’ attitudes toward QE has irrevocably
changed---they have suddenly realized that infinite liquidity injections come
with risk and they are no longer buying ‘the Fed has your back’ rationale for
chasing stock prices higher.
Meanwhile,
France reported a soaring budget deficit, a Goldman report put French banks at
the head of the most levered in the EU list and the EU announced that the
Cyprus template (depositors share in bank losses) was now official EU
policy. I didn’t hear any of the talking
heads reporting these points in spite of the risks that in a world in which
credit problems are growing, this policy that could ignite large capital flows
out of EU banks.
****over night,
Japanese factory orders improved more than expected, the EU agreed to its first
budget cuts ever and rumors are circulating that the ECB will begin buying the
bonds of its member countries ala Bernanke.
Bottom line: I
guess the big question before us is, can the Fed convince investors to again
drink the QE/the Fed has your back Kool Aid?
The answer to that is likely to determine Market direction, at least in
the near term. As you know, I am a
skeptic; but then I have been for too long.
All that said, I
simply can’t get the assumptions plugged into our Models positive enough to
justify current valuations. So I remain
cautious and our Portfolios will continue to take advantage of any upward price
movement that drives any of our stocks into their Sell
Half Ranges
The
latest from SocGen (medium and today’s must read):
Update
on Market valuation (medium):
For
the bears (medium):
The
latest from Bill Gross (medium):
Total
versus per share earnings (short):
No comments:
Post a Comment