Friday, July 17, 2015

The Morning Call---All's well that ends well, unless you are a Greek

The Morning Call

7/17/15

The Market
         
    Technical

The indices (DJIA 18120, S&P 2124) had a great day on the back of more good news from Greece.   Both closed above their 100 day moving average which have now become support.  Resistance exists at their all-time highs (18295/2135) and the upper boundaries of their long term uptrends.

Longer term, the Averages are in uptrends across all timeframes: short term (17585-20409, 2075-3054), intermediate term (17800-23932, 1861-2629) and long term (5369-19175, 797-2145).  

Volume was up slightly; breadth improved.  The VIX (12.1) was down 8%, ending below its 100 day moving average and near the lower boundary of its short term trading range.  It is back in a price range that represents value as portfolio insurance.  Below is a study that suggests that volatility as insurance is best used as a trading tool versus a long term investment.

The long Treasury was up, finishing below its 100 day moving average and the upper boundary of its short term downtrend. 

GLD declined, closing below its 100 day moving average and below the lower boundary of its intermediate term trading range.  If it remains there through the close next Tuesday, the intermediate term will re-set to a downtrend.

The dollar was up, ending above its 100 day moving average for a second day (a close over it today will convert it from resistance to support) and above the upper boundary of its very short term downtrend for a second day---thereby negating that trend.   Oil declined 1.5%, ending below its 100 day moving average and near the lower boundary of its short term trading range.

Bottom line: those 100 day moving averages are now back providing the kind of support they have given over the last couple of years.  So stocks are now in that narrow range between their moving averages and their all-time highs/upper boundaries of their long term uptrends.  As long as volume remains low and the number of divergences continue to increase, I don’t think that the underlying momentum in the Market is sufficient to successfully challenge the latter.  On a short term risk (lower boundaries of short term uptrends)/reward (the upper boundaries of long term uptrends) basis, the equation is roughly balanced---being negative for the S&P but still positive for the Dow.

    Fundamental
   
       Headlines

            Yesterday’s economic data was weighed to the upside: weekly jobless claims and the NAHB index were pluses while the July Philly Fed index had a big shortfall. 

            ***overnight, Puerto Rico misses a bond interest payment

            Overseas, the only number we got was Chinese debt which has risen to 207% of GDP.   In Europe, the ECB held interest rates unchanged. 

            But the biggest news was the YES vote by the Greek parliament accepting the initial demands of the Troika, accompanied by a meeting of the EU financial ministers to discuss the short term funding needs of Greece.  After all the drama, it would seem that the risk of a Grexit has declined with these moves.  While I don’t think this necessarily a plus for the Greeks and while there are a lot of things that need to go right before we can safely assume that this crisis is over, it appears that the worst case is off the table. 

Where the IMF seems to stand on Greek debt relief (medium):

            Where the Greek banks and depositors stand (medium):

            ***overnight, it appears that the Greek banks will receive funding that will allow them to re-open on Monday and the Greek government will get a loan to repay an ECB loan due next week and the IMF loan it missed last week.  In addition, the German parliament approved negotiations for a Greek bail out.

Strangely, it also seems that after a one (now two) day market advance, investors have concluded that the economic/market problems in China are also a thing of the past, despite some stiff warnings from some high powered money managers. 

Bottom line: assuming that the Greek and Chinese problems are behind us (and I am not sure that is a good assumption), it (1) helps clarify our economic forecast on the international economy in that our base case is for the world to ‘muddle through’ and a resolution of these potential crisis raises the probability of our outlook meeting expectations but (2) it does nothing to [a] close the gap between current stock prices and Fair Value as calculated by our Valuation Model {Fair Value assumes ‘muddling through’} and [b] solve the central bank created problem of asset mispricing and misallocation.

            Lance Roberts’ weekly observations (medium and a must read):

   
Economics

   This Week’s Data

            The July Philadelphia Fed index came it at 5.7 versus expectations of 12.0.

            The July National Association of Homebuilders index was reported at 60 versus estimates of 59.

                July CPI was up 0.3%, in line; ex food and energy, it was up 0.2% also in line.
           
            June housing starts increased 9.8% versus forecasts of an 8.5% advance.

   Other

Politics

  Domestic

  International War Against Radical Islam

            Thoughts on Obama’s defense of His Iran deal (medium):






No comments:

Post a Comment