Thursday, May 28, 2015

The Morning Call--Liar, liar, pants on fire.

The Morning Call


The Market

After a rough Tuesday, the indices (DJIA 18162, S&P 2123) bounced back yesterday.  Both closed above their 100 day moving average.  However, they are again out of sync on their former all-time highs.  The S&P traded back above that level, leaving it as support; while the Dow remains below its comparable level. 

Longer term, the Averages remained well within their uptrends across all timeframes: short term (17247-20052, 2026-3005), intermediate term (17405-22533, 1828-2595 and long term (5369-19175, 797-2138).  

Volume fell; breadth recovered nicely.  The VIX dropped 5%+, finishing below its 100 day moving average and the upper boundary of its very short term downtrend. It remains a plus for stocks. 

A break in the advance/decline indicator (medium):

The long Treasury rose fractionally, but closed below its 100 day moving average and within a short term downtrend.  However, it remained above the upper boundary of a very short term downtrend, negating that trend.

GLD was down slightly, ending below its 100 day moving average and the neck line of the head and shoulders pattern. 

Oil was down again, leaving it within a short term trading range.  The dollar was up fractionally, finishing well above the lower boundary of that short term uptrend which had been technically negated.  It is near the upper boundary of a developing very short term downtrend.  If it pushes through that level, I will re-instate the short term uptrend.

Bottom line: clearly, the buy the dip crowd still has life in it.  Yet to be seen is whether it has the power to make that push the indices to the upper boundaries of their long term uptrends.  I remain of the opinion that prices will almost surely challenge those trend lines but that any further advance will be limited to the rate of ascent of those boundaries.

            The dollar, TLT, GLD and oil all took the day off; apparently unimpressed with whatever was making the stock boys get jiggy.  This doesn’t improve my confusion.

            Update on sentiment (short):


            Following Tuesday data dump fest, US economic releases slowed to a trickle: weekly mortgage applications fell while purchase applications rose; the rate of growth in month to date retail chain store sales declined for a second week in a row.  In short, a mixed reading among secondary indicators; so not a lot of information value.

            Given the NASDAQ making a new all time high, I should mention the takeover offer for Broadcom which helped send the chips stocks on a moonshot.

            No international economic news; though once again the Greek bail out negotiations were center stage.  This time on a statement by the Greek PM that Greece and the Troika were near a deal.  Here is the statement and the Troika’s response (medium):

            The German denial (medium):

***overnight, Japanese April retail sales were up modestly after three down months in a row

Bottom line: very little in the fundamentals to account for yesterday’s rebound in equity prices---certainly nothing in the economic outlook either here or abroad.   The Broadcom takeover is just part of the QE cheap money fueled M&A extravaganza that has kept investors wetting their pants.  Unfortunately, all this cheap money is not being spent to increase American productive capacity or efficiency, which ultimately will come back to haunt us.  But that is a long term negative; and right now investors can’t see much past today’s close.

The Greek news may also be a plus, assuming that it is not more of the same crap trumpeted by the Greek government in their ‘game theory’ approach to the Troika negotiations.  For the sake of our own forecast, I hope that it is true.  But as I have made clear, if Greece defaults/exits all bets are off.  In any case, with the S&P sniffing the upper boundary of its long term uptrend, there is not a lot of room on the risk/reward scale for anything short of a storybook ending.

 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.

            The Fed’s pretense of knowledge (medium):

            Update on S&P earnings expectations (short):


   This Week’s Data

            Weekly jobless claims rose 7,000 versus expectations of a decline of 4,000.


            The $500 million spec home (short):



Obama gets set back on immigration executive order (medium):


            How China’s new ‘silk road’ is altering geopolitics (medium and very interesting):

            I have to wonder if this Russian move in Ukraine is the result of or in conflict with whatever agreement Kerry made with Putin in his recent visit?

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