Thursday, June 25, 2015

The Morning Call---Caught in a very short term trading range, whose resolution will likely be determined by Greece

The Morning Call


The Market

The Averages (DJIA 17966, S&P 2108) retreated yesterday.  The S&P closed above its 100 day moving average; but the Dow finished below its comparable level.  Both ended below their prior highs (18295, 2135).  Yesterday’s DJIA decline below its 100 day moving average brings back into play the lower boundaries of the indices’ narrowing trading ranges.  As was the case to the upside, follow through is key---and not to be repetitious but the moving averages have provided strong support over the past two years.

Longer term, the Averages remained well within their uptrends across all timeframes: short term (17438-20244, 2053-3032), intermediate term (17625-23767, 1849-2617) and long term (5369-19175, 797-2138).  

Volume rose; breadth deteriorated further.  The VIX was up 10%, but remained below its 100 day moving average and within a very short term downtrend and a short term trading range.  Anything below 13, I believe offers value as portfolio insurance.

This article gets a little deep in the weeds; but forgetting the quantitative analysis, the message is clear---volatility is undervalued.

The long Treasury made a slight comeback, but still closed below its 100 day moving average and the upper boundaries of very short term and short term downtrends.

Are bonds breaking down (short)?

            Or perhaps said a little differently, is the long Treasury pricing in a rate hike (short):

            Or is it liquidity or the lack thereof (medium):

GLD declined, remaining below its 100 day moving average and the neck line of the head and shoulders pattern.  Oil was down, ending below the upper boundary of its short term trading range. The dollar also sank and remained below its 100 day moving average and within a very short term downtrend and a short term trading range.

Bottom line: the Average’s very short term trading uptrends may have come to an end yesterday but remain caught between their former highs and their 100 day moving averages---which, as I have noted, are shrinking in scope and but unlikely to be resolved until we get a conclusion of the Greek bailout problem. 

Stock and bond prices continue to trade inversely. 

            The US economic numbers didn’t provide a lot of clarity to the outlook: weekly mortgage and purchase applications were up slightly and final real first quarter GDP came out in line with expectations.

            One international datapoint---June German business confidence fell for the second month is a row. 

            However, investor focus remained on the Greek tragedy, the latest episode of which featured the IMF throwing up all over the proposal presented on Monday.

            Greek fact of the day (short and interesting):

            Clearly, time is running short; but you can never underestimate the eurocrats’ willingness to wait until the fat lady opens her mouth before an agreement is reached.  That said, the risk of a default or a Grexit can’t be dismissed.
            ***what happened overnight:

Bottom line: the US market’s fate seems to be tied to the Greek deal; although,   I am not sure what kind of upside there is since our Models incorporate a ‘muddling through’ assumption for the global economy.  That said, I am not sure what the downside is either.  However, the difference is that the downside (which as aside, I have no idea how to quantify) whatever it is, is not in either our Economic or Valuation Models. 

For that reason alone, even if I was wee weeing in my pants to buy stocks, I would be doing nothing until this situation is resolved.  Of course, I have a lot of other reasons for buying nothing with which you are all too well acquainted.
                And I am joined by another major Market participant:  Icahn on the market (4 minute video):

                Even this technician thinks we should give it a rest. At least till November (short):


   This Week’s Data

            Weekly jobless claims rose 3,000 versus expectations of an increase of 6,000.

            May personal income was up 0.5% versus estimates of up 0.4%; spending was up 0.9% versus forecasts of up 0.7%; the PCE deflator was up 0.1%, in line.


            Renting and inflation (medium):

            More on subprime auto loan securitization (medium):



Obama’s newest hopey, dreamy proposal help the average Joe (short):

A Senate procedural vote assures the passage of Obama’s trade bill.  I believe it an overall positive for the US economic outlook.  Yes, there were some negatives to the bill (renewing the Import/Export bank charter); but it will boost the growth of the economy and it shows that it is possible for our ruling class to compromise and do what is right for the US.


          The importance of Obama’s Asian trade agreement (medium):

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