Friday, April 29, 2016

The Morning Call--Is the EU turning around?

The Morning Call


The Market

The indices (DJIA 17830, S&P 2075) see sawed back and forth during the day and then died in the last hour. Volume fell and breadth weakened.  The VIX jumped 11%, adding weight to the notion that it has made a double bottom.

The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {17651-18605}, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5541-19413}.

The S&P finished [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] below the lower boundary of its short term uptrend {2099-2201}; if it remains there through the close next Monday, it will reset to a trading range, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {830-2218}. 

The long Treasury was up again on good volume again.  It has now bounced off of its 100 day moving and double bounced off of a key Fibonacci level with some authority.  However, it is still in a trading range dating back to early February.  So I am not sure that there is much information value until TLT breaks out of that range.

What the output gap means to bond prices (medium):

GLD was up 2%, finishing within in a short term uptrend, above its 100 day moving average and a key Fibonacci level and nearing its March high.  If it successfully challenges that high, the upper boundary of its intermediate term trading range becomes the next objective.

Bottom line:  the ‘do nothing’ BOJ meeting caused an early sell off, then stocks spent much of the day recovering---until Carl Icahn said (1) he sold his Apple stock and (2) a day of reckoning was coming in stocks.  That resulted in the late day sell off.  As I note above, the decline pushed the S&P through the lower boundary of its short term uptrend.  That is the first technical indication that the current rally could be over.  However, under our time and distance discipline, that trend break won’t be confirmed until next Monday.   Until that happens, I am holding on to my current assumptions: stocks are in heavily congested territory, so the upward progress will be more plodding but I expect them to challenge their all-time highs and fail.



            The US economic data couldn’t handle Wednesday’s good fortune returning to a more negative tone: first quarter GDP was below expectations (primary indicator), weekly jobless claims rose but less than anticipated and the April Kansas City Fed manufacturing index was down but not as much as in March.    

            International stats were the best in memory: March Chinese industrial profits rose 10%+, April EU consumer confidence was up slightly and April German unemployment fell.  Not to rain on the global data parade, but after a near continues chain of poor numbers over an extended period of time, one (now two) day is hardly a sign of any change in trend.  Still any turnaround starts with the first day’s improvement. So the door is open to the possibility of a shift; but that is it.

            ***overnight, Italian unemployment was below forecasts, while first quarter Italian, French and EU GDP were above, first quarter EU inflation was below estimates.

            The big economic news of the day was the surprise decision by the Bank of Japan to take no further steps to either increase security purchases or move deeper into negative rate territory.  I can think of a couple of reasons for this inaction: (1) the Chinese threat at the G20 meeting to stop the currency devaluations, (2) the realization that none of its QE/negative interest rate measures have worked, so why do more.   We all should be so lucky if it was the latter.  How thankful I would be if this is a sign that we might be seeing the beginning of the end of central bank overreach.  Of course, we don’t yet have a clear idea of the BOJ’s rationale.  Hopefully, that comes soon.

Bottom line: initially, the BOJ inaction looked like quite a blow to the QE forever crowd; but then stocks began a decent recovery almost immediately---which I have to say was confusing to me.  It maybe that the underlying price momentum of the Market is so strong that this bad news simply wasn’t enough to discourage the buyers.  Then the aforementioned Icahn statement disrupted the recovery in prices, making it more difficult to measure the full impact of the BOJ move in isolation.  I am sure we will know more soon.  

All this said, as a standalone (in)action, the fact that we don’t have more QE today than yesterday is a positive.

            My thought for the day:  Staying on the subject of Buy and Sell Disciplines: it is important to remember that no decision is irrevocable.  For instance, if you Buy a stock and it declines, hitting your Stop Loss Price, the concern is inevitably ‘what if I sell and the stock goes back up?’ (i.e. I am wrong twice)  So, what if does?  Remember that your portfolio doesn’t know what it doesn’t own---if you sell and the stock goes up, your portfolio doesn’t know and your performance won’t get docked for the subsequent rise.  In short, you should be agnostic to what happens after you sell because your portfolio sure is.  That said, even if that Stop proves to be wrong, you can always buy it back later.  If the upside hasn’t changed, whatever the opportunity cost (the difference between the Stop price and the price you Buy it back) is, it is likely to be negligible in the scheme of things.  On the other hand, if the stock continues down, you will have saved your portfolio the greatest sin---a big loss.

            More on profit margins (short):

            Earnings ‘beats’ and yesterday’s GDP number (medium):

            And even worse, is the SEC about to crack down on the free for all in non GAAP accounting? (medium and a must read):

       Investing for Survival
            The role of randomness in portfolio performance.

    News on Stocks in Our Portfolios
United Parcel Service (NYSE:UPS): Q1 EPS of $1.27 beats by $0.05.
Revenue of $14.42B (+3.1% Y/Y) misses by $150M.

MasterCard (NYSE:MA): Q1 EPS of $0.86 beats by $0.01.
Revenue of $2.45B (+9.9% Y/Y) beats by $70M.

Johnson & Johnson (NYSE:JNJ) declares $0.80/share quarterly dividend, 6.7% increase from prior dividend of $0.75.

AmeriGas Partners (NYSE:APU) declares $0.94/share quarterly dividend, 2.2% increase from prior dividend of $0.92.

Coca-Cola (NYSE:KO) declares $0.35/share quarterly dividend, in line with previous.

V.F. (NYSE:VFC): Q1 EPS of $0.61 beats by $0.03.
Revenue of $2.84B (flat Y/Y) beats by $10M

Praxair (NYSE:PX) declares $0.75/share quarterly dividend, in line with previous

Praxair (NYSE:PX): Q1 EPS of $1.28 beats by $0.01.
Revenue of $2.51B (-9.1% Y/Y) beats by $20M

Exxon Mobil (NYSE:XOM): Q1 EPS of $0.43 beats by $0.12.
Revenue of $48.71B (-28.0% Y/Y) beats by $3.29B


   This Week’s Data

The April Kansas City Fed manufacturing index was reported at -4.  Still it was not as bad as the -6 in March.

                March personal income rose 0.4% versus expectations of up 0.3%; February was revised from up 0.2% to up 0.1%---so a wash for the two months.  Personal spending was up 0.1% versus estimates of up 0.2%; February revision was unchanged.




  International War Against Radical Islam

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