Friday, April 24, 2015

The Morning Call---the Greeks do it again

The Morning Call


The Market

The indices (DJIA 18058, S&P 2112) continued their move up.  Both remained above their 100 day moving averages.  The Dow closed below its prior high---keeping the series of lower highs intact; however, the S&P finished right at the level of its prior high.

Longer term, the indices remained well within their uptrends across all timeframes: short term (17022-19819, 1993-2974), intermediate term (17149-22275, 1802-2575 and long term (5369-18873, 797-2129).  

NASDAQ scores a new high (short):

Volume was flat; breadth mixed. The VIX declined, falling for a second day below the lower boundary of a developing pennant formation for the second time, negating that formation (again).  Two points: (1) this has positive implications for stocks and (2) however, the VIX is near the lower boundary of its long term trading range time which should act a major support.  Because of that proximity, I continue to think that the VIX remains a reasonably priced hedge. 

More on breadth (short):

More on the VIX (short):

Update on sentiment (short):

The long Treasury rallied, but remained below its 100 day moving average and the lower boundary of its very short term trading range, negating it.  My focus is now on the level of the converging lower boundary of its short term trading range (I mistakenly said ‘downtrend’ in yesterday’s Morning Call) and the lower boundary of its intermediate term uptrend.  If those trends are violated, it may well spark sales of at least a portion of the muni bond positions in our ETF Portfolio.

GLD rose, remaining below its 100 day moving average and continuing to form a head and shoulders pattern.

Oil jumped again, finishing back above that boundary line that started as an upper boundary of a short term trading range (resistance), then became support, reverted to resistance and is now back to support.  Clearly, there is a battle between the bulls and bears on oil around that boundary line.  The only thing to do in that situation is wait and see which side takes control.

Bottom line: the indices are challenging the current trend of consecutively lower highs which, if successful, would leave them with one last barrier (their former all-time highs) to cross before an assault on the upper boundaries of their long term uptrends.  Whatever their success in topping their former highs, I continue to believe that those upper boundaries of their long term uptrends will be too powerful to allow a successful break.


            Three US economic releases yesterday; three disappointments: rising jobless claims, poor PMI, really lousy new home sales.  So much for Wednesday’s one day reprieve in the midst of a thirteen week trend of discouraging data.

            Overseas, it was much of the same:

(1) the Bank of Japan said that it may not reach its 2% inflation goal until 2016;        and even if it does, a former BOJ official said that it would be impossible to curb QE because of the catastrophic impact higher interest rates would have on the BOJ balance sheet,

(2)   Chinese and EU April PMIs were below expectations.  In the case of the Chinese, its PMI indicated contraction.

None of the above is great news; however, the European PMI brought to a halt the three week trend in improving EU economic data.  Now the question is, which is the outlier:  the latest number or that three week string of upbeat stats?  We will know in the fullness of time.

***overnight, Greeks blasted at ECB finance ministers meeting as ‘wasting time’ (medium):

And small wonder as the Greek government keeps adopting policies that only make matters worse---in this case, writing off debt of those who qualify as being in poverty (medium):

Bottom line: there was nothing in yesterday’s data to suggest that the growth rates of either the US or the global economies aren’t slipping or, even worse, headed for recession.  The good news, at least for the QE forever investing crowd, is that these disappointing stats will lead to even more QE forever.  At least that is what they think.

What has been an unexpected positive is the results of this season’s earning results; that is, reports are coming in ahead of expectations.  Of course, those current ‘estimates’ had already been lowered on average by over 11%.  Nevertheless, I have to admit it is a surprise to me; and I am the guy who has credited what limited economic growth the US has experienced to the smart, hardworking, enterprising corporate sector.  Still with thirteen weeks of deteriorating macro data, sooner or later, something has to give---either a pickup in economic growth or a fall in earnings. 

Plus, I would argue that however smart, hardworking and enterprising US industry is:  (1) it is getting no help from foreign markets, (2) at least a portion of its success is attributable to financial engineering [selling debt to buy back stock and creative accounting] to which there is a limit.  Which is not to say that this story is at an end; it is to say that it has an end and we get closer every quarter.

 I can’t emphasize strongly enough that I believe that the key investment strategy today is to take advantage of the current high prices to sell any stock that has been a disappointment or no longer fits your investment criteria and to trim the holding of any stock that has doubled or more in price.

Bear in mind, this is not a recommendation to run for the hills.  Our Portfolios are still 55-60% invested and their cash position is a function of individual stocks either hitting their Sell Half Prices or their underlying company failing to meet the requisite minimum financial criteria needed for inclusion in our Universe.

            David Stockman on stock market bubbles worldwide (medium and a must read):

            An interesting thought: Is the US economy’s secular growth rate slowing but becoming more stable?  If so, what does that do to valuations?  In our Model, it would shrink the valuation range; that is, the Buy Value Ranges would move up and the Sell Half Ranges would decline.  I am not sure I believe this thesis but it is something to ponder and do more study on. (medium):

       Investing for Survival

            Lessons from four all-star investors (medium):
    News on Stocks in Our Portfolios

o    Operating Expenses: 323.9 (+5.8%); Operating Income: 184.6 (+0.5%); Net Income: 139.8 (-5.8%); EPS: 1.82 (-2.2%); Non-GAAP EPS: 2.10 (+9.9%).
·         Microsoft (NASDAQ:MSFT): FQ3 EPS of $0.61 beats by $0.10.
·         Revenue of $21.73B (+6.5% Y/Y) beats by $670M.



   This Week’s Data

            The April US Markit flash PMI was reported at 54.2 versus estimates of 56.0.

            March new home sales fell 11% versus expectations of a 3% decline.

            March durable goods orders soared to +4.0% versus forecasts of +0.5%; however, ex the very volatile transportation sector, they fell 0.2% versus estimates of +0.3% and the February report was revised down significantly.


            Median household income declined in March (medium):

            The commercial real estate boom (short):

            The banksters do it again: JP Morgan bans the use of cash to make certain payments (medium):



Accounting at the Clinton Foundation (short):

  International War Against Radical Islam

            Another foreign policy expert on Obama’s Iran policy (medium):

                Quote of the day (short):

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