Wednesday, April 20, 2016

The Morning Call--Dreamland

The Morning Call


The Market

The buyers remain relentless as the indices (DJIA 18053, S&P 2100) advanced again; although again volume was weak.  Breadth improved; and the VIX fell as you would expect; though it remained above the lower boundary of its short term trading range.  It has held this level twice before and is back in the range that offers value as portfolio insurance.  If it holds above that lower boundary, our Aggressive Growth Portfolio will Add to its VXX holding.

The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {17424-18376}, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5471-19343}.

The S&P finished [a] above its 100 day moving average, now support, [b] above  its 200 day moving average, now support, [c] above the upper boundary of its short term trading range {1867-2081} for the second day; if it remains there through the close today, the short term trend will reset to up, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {800-2161}. 

The long Treasury fell fractionally, but remains technically quite strong as it closed within a very short term uptrend, a short term uptrend, above its 100 day moving average and above a Fibonacci support level. 

GLD was up 1%, ending back above the upper boundary of a very short term downtrend (remember it did so last week, but failed to hold), above its 100 day moving average and a key Fibonacci support level.  

Bottom line: the Averages advanced again, and again in the absence of volume and any positive news.   My major technical takeaways remain: (1) stocks are at a level of heavy congestion and so going is likely to get a bit tougher, (2) but the technical strength is sufficient to maintain the assumption that the Averages will challenge their all-time highs.

            Who is selling and who is buying (medium):



            The economic data were again downbeat yesterday: March housing starts and building permits were very disappointing as were month to date retail chain store sales.

            Overseas, the news was a bit more encouraging as German investor confidence rose.  Plus anticipation grew that the Bank of Japan would ease further at its meeting next week as a result of the economic hardships born of the recent earthquakes.  I am not sure how much easier it can be; but just the prospects seem to be making investors giddy.

            ***overnight, March Japanese exports fell for the sixth month in a row, which

(1)   cast doubt on all the recent upbeat economic news out of China [one of Japan’s largest trading partners].  Speaking of which:

(2)   raises the odds of more QE coming out of the Bank of Japan’s meeting next week.

            Of course, our own Fed also gathers next week for another bulls**t discussion about how the US is doing great but not great enough to offset the problems in the global economy, so nothing needs to be done.  And if history repeats itself, investors will be even more encouraged.

Bottom line: the economic stats continue to point to recession.  First quarter revenue and earnings growth have thus far come in pretty much as expected---which is to say down ~9%.  Not exactly the stuff of higher equity valuations.

However, hope springs eternal as investors are focused on (1) the Bank of Japan and Fed meetings next week, apparently expecting more easing from the BOJ and happy talk from Yellen, and (2) better corporate results in the second, third and fourth quarters. 

While they will undoubtedly be correct on the former, the latter is a tad iffier.  First, unless there is some improvement in the macro data, I don’t know how expectations for better revenue and earnings growth can possibly materialize.  Second, remember all those charts that I have linked to in the past couple of years that showed constantly increasing Street expectations and then the results constantly deviating to the downside.  That is still occurring (medium and a must read):

You know my take on the current investment environment: take some profits in stocks that are near their highs.  Don’t sell the whole holdings; just take your cost out so that you are now playing with House money.   

I also urge those who just have to ‘play’ to stick very close to things with which you are familiar.  I get questions from investors that hear about some exotic strategy that is making great returns and want to jump on board to get a piece of the action.   Don’t.  Investing is a very tough game when you concentrate on those things that you know.  When start playing in somebody else’s game, it makes no sense.  Think about going to Vegas, sitting down a table for a game you have never played before with guys who have been playing for years.  You wouldn’t do it.  So why do the same thing in the Market?  Stick with what you know; and the most important thing to know is what you don’t know.

            The latest from John Hussman (medium):

            The risks posed by derivatives (medium):

            Mean reversion (short):

            Fraud in high frequency trading (medium and a must read):

       Investing for Survival
            Understanding the probabilities of winning or losing.

    News on Stocks in Our Portfolios
Genuine Parts (NYSE:GPC): Q1 EPS of $1.05 beats by $0.02.
Revenue of $3.72B (-0.5% Y/Y) in-line.

Coca-Cola (NYSE:KO): Q1 EPS of $0.45 beats by $0.01.
Revenue of $10.28B (-4.0% Y/Y) in-line.


   This Week’s Data

            Month to date retail chain store sales fell dramatically from the prior week.

            Weekly mortgage applications rose 1.3% while purchase applications fell 1.0%.


            Saudi’s going for the kill (medium):

            OPEC and game theory (short):

            The number of publically traded firms have halved (short):



The 9/11 documents are not the only thing the government is hiding (medium):

  International War Against Radical Islam

            Uncovering the hidden truths of 9/11 (medium):

Visit Investing for Survival’s website ( to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

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