Friday, June 5, 2015

The Morning Call--Incoming

The Morning Call


It is beach time again.  I leave bright and early tomorrow morning.  So no Closing Bell this week or next week; and no Morning Calls next week.  I will have my computer with me; so if any action is required, I will send out a Subscriber Alert.

The Market

Volatility went beyond intraday swings yesterday, pushing the indices (DJIA 17880, S&P 2093) down markedly.  Both finished below their former all-time highs.  The Dow ended below its 100 day moving average, while the S&P remained above its moving average.  Remember that this trend line has provided strong support for the indices for over two years.  So it is something that I will be watching closely as sign of new weakness/continued strength.  Both the DJIA and the S&P closed below the lower boundary of a very short term uptrend.

Longer term, the Averages remained well within their uptrends across all timeframes: short term (17312-20117, 2034-3013), intermediate term (17458-23598, 1834-2602) and long term (5369-19175, 797-2138).  

Volume fell again to an even more anemic level, negating the recent pattern of higher volume on down Market days.  Breadth was down.  The VIX spiked 11%, finishing above the upper boundary of a very short term downtrend and its 100 day moving average.  If it remains above these trends through the close next Tuesday, it will be a negative for stocks.

Update on sentiment (short):

The long Treasury rebounded but still ended below its 100 day moving average and the upper boundary of that recently negated very short term downtrend and within a short term downtrend.  Given the proximity of its close on Wednesday to the lower boundary of its short term downtrend, an oversold bounce was not unexpected.

            Are the bond vigilantes back? (short):

The latest from Bill Gross (medium):

GLD was down---continuing to do nothing and ending below its 100 day moving average and the neck line of the head and shoulders pattern.  Oil fell 3%, closing back below the upper boundary of its short term trading range. The dollar rose slightly, closing below its 100 day moving average and remaining near the lower boundary of the former short term uptrend.

Bottom line: with volatility finally surfacing in the equity markets, the Dow is now challenging its 100 day moving average which recently has proven great support.  However, the S&P still has further to drop before it breaks its own 100 day moving average.  Given the lack of conviction demonstrated by investors of late (of which yesterday’s pathetic volume was just another sign), follow though is as important as ever. 

Volatility continued in both bonds and oil, though dollar trading was relatively quiet.  Like stocks, follow through is also important to all three as they are at or near support/resistance levels.

            Yesterday’s US economic data were mixed: better than anticipated weekly jobless claims and poor first quarter nonfarm productivity and unit labor costs.  This week’s stats on a quantitative basis have been positive for the first time in nineteen weeks; although the primary indicators matched off.  Nonetheless overall, this has been a good week for US numbers.  At the risk of beating a dead horse, the stats needed to get better or I would likely have had to start considering lowering our growth forecast down for a second time.  So in the sense that a stabilization in the dataflow gives the first sign of support to our new outlook, it is clearly welcome.

            WSJ questions ‘rosy’ Fed Beige Book report (medium and a must read):


(1)   the IMF urged the Fed to delay any rate increases until 2016.  Whether this was entirely related to US economics [could it possibly be taking issue with the Fed’s current ‘improving economy’ spin campaign?] or was at least partially motivated by the fear that a rate increase could exacerbate the fallout from a potential Grexit, is the question,

(2)   it looks like I was wrong assuming that the potential for a crisis in Ukraine was over following the Putin/Kerry meeting a couple of weeks ago.  Violence has suddenly re-ignited there, driven by new moves from Russian supported rebels.  It is too soon to know exactly what the real reasons are.  I am sure that we will know soon; but in the meantime, the risk of missteps is back with us,

Fighting continues in Ukraine (medium):

(3)   Greece confirmed that it won’t make the IMF payment; although it appears that the IMF is going to allow it to ‘bundle’ all its June debt repayments and settle up at the end of the month---confirming that the euros are going to kick the can down the road as long as possible.   Sooner or later this circus has to end and when it does the consequences will almost surely be worse than if they faced the music today (medium):

            ***the overnight episode of this melodrama (medium):

Bottom line: this week’s economic news was the best in nineteen weeks.  Not that it was great.  And not that it means that our recently downwardly revised growth outlook for the economy is in any danger of having to be reversed.  Hopefully it means that the economy is starting to stabilize at the lower growth rate incorporated in our revised forecast.  ‘Hopefully’ being the operative word because clearly more data is needed before we can be sure that in fact the economy has stopped losing steam.

The Greek bailout problem is not going away, though clearly the euros are working overtime to push the endgame as far into future as possible.  A Greek default has now been pushed from tomorrow to the end of June.  And who knows what bulls**t reason they will find to delay the final curtain for even longer.  I have spent a lot of time and space providing as clear a picture as I can as to the potential consequences of alternative outcomes.  And to be sure, there will undoubtedly be unintended consequences that even the experts haven’t foreseen.  But at least those are known unknowns.  What worries me is how much pain of any of this being discounted by what I perceive to be a far too sanguine investors class.

 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 incredibly bearish bull market (medium):

            Corporate buybacks inflating the bubble (medium):


   This Week’s Data

            Retail chain stores reported mixed results in May.

            May nonfarm payrolls grew to 280,000 versus expectations of 220,000.


            The Philly Fed ADS index (short):

            A recession risk signal (short):

            A look at what is going on in China (medium):


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