Friday, July 10, 2015

The Morning Call--A new day dawning?

The Morning Call

7/10/15

The Market
           
    Technical

The indices (DJIA 17548, S&P 2051) managed to only rebound weakly yesterday.   Both remained below both their 100 and 200 day moving averages.  The Dow closed below the lower boundary of its intermediate term uptrend for the second day (if it remains there though the close Monday, the trend will be negated) and right on the lower boundary of its short term uptrend.  Under our time and distance discipline it has to move back above that level to void the break (if it stays below that lower boundary through the close today, the trend will be negated).  The S&P ended below the lower boundary of its short term uptrend for the second day (if it remains there through the close today, the trend will be negated).

Everything that you wanted to know about the 200 day moving average but were afraid to ask (medium):

Longer term, the Averages are, for the time being, in uptrends across all timeframes: short term (17548-20354, 2068-3047), intermediate term (17746-23888, 1861-2629) and long term (5369-19175, 797-2138).  

Volume rose; breadth improved.  The VIX was up which is a bit unusual on an up Market day.  It ended above its 100 day moving average and very near the upper boundary of its intermediate term downtrend.

The long Treasury got spanked for about 2%, finishing below its 100 day moving average and the upper boundary of its short term downtrend. 

GLD was up fractionally, 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 rose slightly; oil was up about 2%, but still below its 100 day moving average and near the lower boundary of its short term trading range.

Bottom line: after a strong open, the Averages finished very near Wednesday’s close.  Not much of a bounce; and it did very little to correct the technical damage done on Wednesday as the indices are challenging multiple support levels.  So the follow through was pretty dismal.  However, stocks are still oversold; and while the ‘buy the dip’ crowd didn’t have much firepower yesterday, more damage is needed before they can be summarily dismissed.  Keep you helmets on.

            The perils of margin debt (medium):

    Fundamental
   
       Headlines

            Yesterday’s US economic stats were mixed: weekly jobless claims were disappointing while June retail chain store sales improved.  That leaves the weekly dataflow also mixed.

            No international economic numbers yesterday.

            The latest from Greece is that the government has submitted its new, new, new plan as of last night.  The EU financial ministers will consider it today and the big guys meet on Sunday to approve/disapprove the Greek proposal.  Even though this get together has been characterized as the final judgment day, we have been through so many of these, I hesitate to accept that.   Indeed, this whole affair has morphed from a five act tragedy to a daily soap opera that just goes on and on.  All we can be sure of is more drama.

            ***overnight, the proposal submitted by Tsipras appears to mirror an earlier plan from the Troika---which incidentally was the plan voters rejected in the referendum.  Drinks all around       

            The Chinese market aided by still more market intervention managed a rebound.   That seemed to cool concerns; though, judging by yesterday’s pin action, not by much.  The big question is, how persuasive for investors will the massive intervention of the government be (i.e. will they stop selling)?  I noted yesterday that I was skeptical that it would work because these measures have stymied price discovery.  On second thought, I realized that our own Fed has done the same thing for the last four years only not on such a grand scale; and to date, it has been successful and it has had to face a lot more sophisticated group investors than the Chinese.  That said, it would indeed be ironic if the great unwashed masses in China (now at the wrong end of a gun) continue to call bulls**t on their government while our own erudite counterparts spend their time waiting with bated breath for the next pearl of wisdom out of Yellen’s mouth.    None of this answers the question I posed above except as it relates to whether or not the Chinese are and we may soon be having an ‘emperor’s new clothes’ moment.

            ***overnight, Chinese stocks are up for a second day on additional moves (mandated stock buy backs) by the Chinese government.  Bartender, a second round.

            The worst is not over in China (medium):

            A more optimistic take (medium):

Bottom line:  ah, a new day is dawning.  The Greek bailout is solved and the Chinese market is rallying.  Maybe.  In my opinion, it is debatable whether any deal based on the submitted proposal is a win for the Greeks.  Yes in the short run, it keeps them on life support and some of the measures being forced on them are necessary; but without debt relief, the country is still f**ked.  As for China, how do you have a functioning capital market when investors know that if they buy a stock, there is a chance they will be put in jail for selling it?  

In my opinion, if you are still 100% invested, take advantage of any rally on the above good news and lighten your positions.  If you do and the Market soars to new heights, it likely won’t be the worst investment decision that you have ever made in your life.  If you don’t and stock prices mean revert, it may be in the top ten.
   
    
Economics

   This Week’s Data

            June retail chain store showed improved year over year growth.

   Other

            The Chicago Fed’s national financial conditions index is not looking good (short):

Politics

  Domestic

What climate wars did to science (medium):


  International War Against Radical Islam







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