The Morning Call
The Market
Technical
The
DJIA (15010) has traded below the lower boundary of its short term uptrend
(15117-16023). A close below 15117 today
will confirm the break. It will then
re-set to its former trading range ( 14190-15550). In addition, it will put the Averages out of
sync and alter the Market direction from up to indecisive.
The S&P
(1646) remains within its short term uptrend (1625-1781), though it was unable
to hold above the upper boundary of the former short term trading range (1687).
Both of the
indices are within their intermediate term (14601-19601, 1553-2141) and long
term uptrends (4918-17000, 715-1800).
Volume fell;
breadth was weak: (1) the flow of funds indicator is particularly negative, (2)
both of the Averages have traded below their 50 day moving averages. As ugly as this is, the Market is now
significantly oversold; so expect a rally.
The VIX rose 5% but is well within its short term trading range and its
intermediate term downtrend.
GLD was down
fractionally, remaining within a very short term uptrend but also within its
short and intermediate term downtrends.
Bottom
line: stocks continue to trade to the
upside---but just barely. A close in the
Dow below 15117 today will put the Market back in neutral. That doesn’t necessarily forebode a major
reversal---in this major up Market, we have witnessed a series of very short
term dips followed by a big bounce back to the upside. As you know, I have been skeptical of them
all since this time last year when the S&P was in the mid 1400’s---and we
know how that has worked out.
Nonetheless, somewhere out there is a turning point. If this is it, we will know in time.
Foreign
investors leaving the US
markets (short):
***over
night, Asian markets were in turmoil (i.e. down big) and Europe
followed suit.
Fundamental
Headlines
No
US economic
data yesterday, though we did get some upbeat trade data out of Japan
and some sorry news on Spanish banks.
None
of that mattered because all eyes are now on the Fed (bond market) as the
realization seems to have grown that ‘tapering’ is upon us. When last I commented (8/2), it seemed that
investors were anticipating the best of all worlds, i.e. continued economic
improvement but no ‘tapering’. So the
psychology has clearly changed driven primarily by a bond market that seems to
have concluded that either ‘tapering’ is coming in September or if ‘tapering' doesn’t occur, it should have and therefore will put enough pressure on the Fed
that it will be forced to act soon after.
A
history of bond bear markets (short):
The
calendar leading up to the Fed’s September meeting (medium):
Of
course, investor psychology could turn on a dime and push prices back to new
highs---although I would observe that the kind of skittish behavior we have
seen of late is somewhat indicative of an overextended market (talking my book
again).
Bottom
line: stocks are overvalued and two of the principal reasons for that appear to
be about to fade (low rates and ‘free money’).
To reiterate, I remain sanguine on the economy and have been encouraged
by the recent upbeat trend in data from Europe . However, that is largely built into our
Valuation Model. My problem is that
equities are valuing a passable economic scenario far too generously. If we get another run up in prices, our
Portfolio will continue to lighten up on those stocks trading into their Sell
Half Range. If we finally do get a
correction, they have plenty of fire power.
The
latest from John Hussman (medium):
More
optimism from Scott Grannis (short):
Is
the bond market discounting tapering (short):
Are
bonds driving the stock market? (medium):
Subscriber Alert
The
stock prices of ITC Holdings (ITC -$86)
and Target (TGT -$68) have traded into their
respective Buy Value
Ranges TGT
so no action will be taken. Given my
concern about the current level of stock prices in general, it will refrain
from Buying a new position in ITC at this
time.
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