Tuesday, May 31, 2016

Tuesday Morning Chartology

The Morning Call

The Market

       Tuesday Morning Chartology

            The S&P soared last week, cutting through that very short term downtrend like a hot knife through butter.  We now await a challenge of the upper boundary of its short term trading range.

            The long Treasury continues to struggle in a fairly tight trading range.  With all the talk of an increasing Fed Funds rate, you would think that it would have moved to the downside.

            GLD took out its short term uptrend with little difficulty, is now challenging its 100 day moving average and is about to challenge the newly reset lower boundary of a short term trading range.  If both those challenges are successful, the run is GLD may be over.

            The VIX is making another run at the lower boundary of its short term trading range.  If it can successfully challenge it, we could be in for a fun summer.  Otherwise, this recent rally may come of a screeching halt.



            US economic news slipped back into the negative column last week: above estimates: April housing starts, weekly mortgage and purchase applications, the April trade balance, April durable goods orders and weekly jobless claims; below estimates: May Markit manufacturing and services PMI’s, month to date retail chain store sales, the May Richmond and Kansas City Fed manufacturing indices, revised first quarter GDP and May consumer sentiment; in line with estimates: April durable goods orders, ex transportation and first quarter corporate profits.  The primary indicators were ever so slightly positive: April housing starts (+), April durable goods orders (+) though April durable goods, ex transportation was in line, and revised first quarter GDP (-).  Overall, I am going to rate this a neutral week, making the current score: in the last 37 weeks, nine have been positive to upbeat, twenty six negative and two neutral.

            That makes three weeks in a row that the numbers have been neutral to positive.  That is hardly a trend but it is a sufficient enough divergence from the overall pattern of the last nine months to beg the question of whether or not the US economy has ceased weakening.  The answer is that it is too soon to tell but the yellow is now flashing.  However, if the economy is starting to gain some traction, that would clearly be a big plus. But it would no way suggest that the US economy is about to return to its historical secular growth rate.  It remains burdened by too much government spending, too many taxes, too much regulation and a Fed that is way too impressed with its ability to control the economy.

            ***overnight, May EU inflation remained negative (-0.1%) while April Japanese factory output, household spending and job availability were better than expected.

            Of course, last week’s big news was the apparent hawkish turn of the Fed, including Yellen, implying a June or July rate increase.   And that seemed to be the driving force behind the Market moonshot.  The reasoning for all this jigginess, as I read the Market gurus, is that the Fed is moving now because the economy is so awesome but in case it’s not, the Fed will have more room to cut rates---which seems to lack some logic.  First of all, while the last three weeks of data have been decent and three weeks is at least a semblance of trend, I am not sure that sufficient to declare the economy on an upward trajectory strong enough (even in the Fed’s model) to warrant a rate hike.  Second, if things are so peachy, why already start worrying about the economy rolling over?

            I suspect that the real reason was that the Fed, knowing that it has itself in a box, tested the waters again on a rate hike and when the Market response was favorable (since the Market has been the only piece of data dependency upon which the Fed has relied), everyone on the FOMC went all in for an increase in rates.

            All this nonsense aside, my thesis remains that QE did little to help the economy so its absence will do little harm; however, QE was the primary fuel for the gross mispricing and misallocation of assets, hence, its absence will likely have a profound impact on asset pricing.

            Thoughts from Sam Zell (medium):

            Warning from the yield curve (medium):

        Subscriber Alert

            The price of FMC Inc. (FMC) has risen above the upper boundary of its Buy Value Range and, hence, is being Removed from the Dividend Growth Buy List.

            The price of AmeriGas Ptrs (APU) has risen above the upper boundary of its Buy Value Range and, hence, is being Removed from the High Yield Buy List.

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    News on Stocks in Our Portfolios
Medtronic (NYSE:MDT): FQ4 EPS of $1.27 beats by $0.01.
Revenue of $7.57B (+3.7% Y/Y) beats by $80M

Bank of Nova Scotia (NYSE:BNS): FQ2 EPS of C$1.46 beats by C$0.03.
Revenue of C$6.59B (+10.9% Y/Y) beats by C$150M.


   This Week’s Data

            April personal income rose 0.4%, in line; personal spending was up 1.0% versus expectations of up 0.7%; the core PCE price index was up 0.2%, in line.

            China getting more aggressive in yuan devaluation (medium):

            The failure of negative interest rates (medium):

            Quote of the day (short):

            Here we go again---free money to those who can’t pay it back (medium):



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