Wednesday, July 15, 2015

The Morning Call---Greece marches to the guillotine, Chinese stocks are cratering, again

The Morning Call

7/15/15

The Market
           
    Technical

The indices (DJIA 18053, S&P 2108) continued their rally.   Both closed above their 100 day moving average.  If they remain there by the close Thursday, they will change this moving average from resistance to 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 (17571-20395, 2073-3052), intermediate term (17773-23905, 1861-2629) and long term (5369-19175, 797-2145).  

Volume fell, again; breadth was mixed (though a majority of the indicators were negative).  The VIX (13.4) was down 4%, ending below its 100 day moving average.  A price below 13.0 represents value as portfolio insurance.

The long Treasury was up fractionally, but finished 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 the neckline of the head and shoulders formation and very near the lower boundary of its intermediate term trading range.  

The dollar fell slightly, ending right on its 100 day moving average and near the upper boundary of its very short term downtrend.  Oil was up markedly (apparently on a buy [the bad news] response to the Iranian nuke deal), but still ended below its 100 day moving average and near the lower boundary of its short term trading range.

Bottom line: the good technical news is: (1) the Averages have recovered above all those support levels that they challenged, (2) so they are free of all resistance standing between current prices and their all-time highs and (3) investors seem impervious to bad news [Greece is not over, yesterday’s economic news was not that great].  The bad news is low volume and weak breadth. 

I expect another assault on those all-time highs and the upper boundaries of their long term uptrends, the latter of which I also believe they will fail to challenge successfully.

            Market performance after a flat first half of the year (short):
           
    Fundamental
   
       Headlines

            Yesterday’s US economic data provide the worse day for stats in a month: the June small business optimism index, June retail sales, June export and import prices and month to date retail chain store sales were all disappointing; while May business inventories and sales were ahead of expectations.  I don’t think that this means that recent trend showing a stabilizing economy is over; but it does illustrate the dataflow of a very sluggish economy.  I would point out that the those June retail numbers are important in that (1) they will likely force a reduction in second quarter GDP growth estimates and (2) it is one of the big four indicators.

            ***overnight, the White House budget office lowered its second quarter GDP growth and inflation estimates.

            Overseas, the June UK inflation rate fell to zero---not a plus sign in a growing economy.  In addition:

(1)   Tsipras party was in open rebellion over the bailout deal, though investors appear to believe that parliament will approve it.  More analysis:

                  Greek deal poisons relationships with the eurozone (medium):

                  The IMF doesn’t like it (medium):

***overnight, the European commission released its own report on Greek debt sustainability (medium):

                 And the Greeks don’t like it much either (medium):

                      Greek bad loans soar (short):

                 Highlights from Tsipras’ speech yesterday afternoon (short):

(2)   China’s market turned to the negative Tuesday [Monday night]

                 How China’s stock market problem could impact its economy (medium):

                 Cracks in the fa├žade (medium):

***overnight, second quarter Chinese GDP, retail sales and industrial production all were reported ahead of expectations; if you believe the numbers.  Apparently the Chinese investors weren’t that enthralled because Chinese stocks are cratering again.

In addition, the Bank of Japan left its (highly expansive) monetary policy unchanged and lowered its 2015 GDP and inflation forecast.

(3)   the US and allies reached an agreement with Iran on a nuclear deal.  I am not wild about this from a political/military standpoint.  But economically, this should have a negative influence on oil prices [another ‘unmitigated’ positive?] and a positive impact on world trade as Iran exits sanctions.

Thoughts on the Iran deal (medium):

                  Wednesday morning humor (short):

            Bottom line:  investors appear as positive as they were negative only a week ago---which would be perfectly understandable if the issues over which they were negative had been resolved/contained.  But they are not.  (1) the Greeks are headed for the guillotine. I can’t imagine that being done without incident.  Indeed, I am stunned that they are even considering accepting the terms laid out by the Troika. (2) I think it imprudent to accept that the Chinese government has in effect successfully converted a free [stock] market to an unfree one.  May be it will; but I read yesterday about a similar circumstance in Pakistan and it didn’t work out so well.  I also think it a questionable assumption that any financial/economic problems that have contributed to the recent sell off in stocks can be contained inside that country, (3) yesterday’s US economic data reaffirms our forecast for a slowing rate growth, which I don’t believe is reflected in most Street forecasts. 

Of course, Yellen begins two days of congressional testimony today; and if history is any guide, she will feed legislators (and investors) with the usual dose of feel good pabulum.   So I am sure investors are feeling comfortable in the sure knowledge that she will continue to have their back.  What’s not to like?

I continue to believe that any price strength should be used to Sell stocks that have reached your profit objective or whose underlying company no longer meets your standards for financial strength.

            More on valuation (short):

Economics

   This Week’s Data

            Month to date retail chain store sales dropped off considerably from the prior week.

            June export prices fell 0.2% versus expectations of a rise of 0.1%; import prices declined 0.1% versus estimates of an increase of 0.1%.

            May business inventories were up 0.3% versus forecasts of up 0.2%; sales were up 0.4%.

            Weekly mortgage applications fell 1.9% while purchase applications were down 8.0%.

            June PPI was up 0.4% versus estimates of up 0.3%; ex food and energy, they were up 0.3% versus forecasts of up 0.1%.

            The June New York Fed manufacturing index came in at 3.86 versus consensus of 3.5

   Other

            The good news about the federal deficit (medium):
               
The probability of a global recession (medium):

            Analysts expect another weak quarter for S&P revenue growth (short):

Politics

  Domestic

  International War Against Radical Islam

           







No comments:

Post a Comment