The Morning Call
6/5/15
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
Technical
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.
Fundamental
Headlines
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):
Overseas:
(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):
Economics
This Week’s Data
Retail
chain stores reported mixed results in May.
May
nonfarm payrolls grew to 280,000 versus expectations of 220,000.
Other
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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