Thursday, June 16, 2016

The Morning Call---Confused as ever

The Morning Call


The Market

The indices (DJIA 17640, S&P 2074) continued weak, though instead of selling down early then rallying into the close as they did Tuesday, they were up for most of the day and fell into the final bell---a much less positive pattern. Volume was flat.  Breadth weakened but is now in oversold territory.  The VIX was off slightly, but still finished well above its 100 day moving average, now support.

The Dow closed [a] above its rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term trading range {17498-18726}, [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 rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term trading range {2037-2110}, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {830-2218}. 

The long Treasury was strong, ending above its 100 day moving average and within short, intermediate and long term uptrends.

GLD (123.6) was up.  It is well above the lower boundary its 100 day moving average and is nearing the upper boundaries of its short term trading range (124.2) and intermediate term trading range (125.6). 

Bottom line: for the first time that I can remember, investors reacted negatively to a dovish Fed.  I don’t know if this was just noise or a sign of things to come.  But the Market must still deal with Friday’s expirations and the Brexit.  Still, best to do nothing---unless you want to take profits.

The TLT chart couldn’t get much more bullish; though if this is a reflection of recession or coming economic/political turmoil, it is not a plus for stocks.

GLD is trying to send a similar signal.  But it is not there yet.

            China selling US stocks (medium):



            Yesterday’s economic stats were negative on balance: weekly mortgage and purchase applications fell, the June NY Fed manufacturing index was better than expected but May industrial production (primary indicator) and capacity utilization were worse, May PPI and PPI ex food and energy were higher than anticipated. 

            Update on big four economic indicators (medium):

Overseas, UK unemployment fell to an eleven year low.

            ***overnight, the Bank of Japan left key interest rates unchanged and lowered its inflation outlook; the Swiss National Bank also left key interest rates unchanged; UK retail sales were well above forecast.

            Of course, the big news of the day was the completion of the June FOMC meeting with its accompanying statement and the Yellen press conference.  Surprise, surprise, FOMC ended all hawkish commentary and sounded more dovish than it has in weeks: (1) no rate hike in June, (2) it left open the possibility of two rate hikes in 2016, though six members believe that there will be only one, (3) most importantly, it lowered the rate increase objectives for 2017 and 2018, (4) the economic picture remains mixed and (5) there were no dissents.

            In short, more mewing, disguising fear, uncertainty, cluelessness or all of the above.  With the US economy slowing, the rest of the world’s economies in trouble, the Fed is never going to raise rates again until the current regime is replaced or fears replacement.  There will always be an excuse.

            Bottom line: surprisingly, stocks sold off after the latest dose of dovish pabulum.  Of late, stocks have been up no matter what the Fed said because awesome was always part of its economic assessment.  With the downgraded outlook for future rate increases, it seems that all is not awesome.  That has to give investors pause in what has been their unshakable faith that the Fed really knows what is going on.  So I can’t help wonder if they are starting to realize that there is a point to growing chorus of central bank detractors.  Too soon to know but yesterday’s pin action was not a good sign.

            More sanguine thoughts on a Brexit (medium):

            My thought of the day: most brokers and investment advisors spend a lot of time talking about stocks, particular stocks, that they want you buy or are enthralled with.  And I do the same.  Indeed, three of our Model Portfolios don’t even have any asset allocation aspect to them---they are all stocks.  A big part of the reason is that I am one guy and it is hard enough dealing with only one class of securities much less a dozen.  In addition, doing the analytical work on the individual securities within each asset class is simply impossible.

But that doesn’t mean that asset allocation isn’t an important part of overall portfolio management.  Part of the reason for setting up the ETF Portfolio was to introduce asset allocation to our subscribers.  In this Portfolio, I can make the asset class decision and buy a well-diversified portfolio of matching securities (an ETF) at an inexpensive price. 

My point here is that if your portfolio is all stocks, then you have no downside protection if the bottom drops out; if it is all bonds, you have severely restricted your portfolio’s ability to grow.  That split between stocks and bonds (or alternative assets) is a function of your need to grow income, your ability to sleep at night and a dozen other factors that are particular to only you.  But it determines a balance of risk and reward that ultimately governs how your portfolio performs relative to your needs.  In the end, that is a lot more important a decision than whether you buy Tesla or not.

    News on Stocks in Our Portfolios

   This Week’s Data

            May industrial production declined 0.4% versus expectations of a fall of 0.1%; capacity utilization was 74.9 versus estimates of 75.2.

                May CPI came in at +0.2% versus forecasts of +0.3%; ex food and energy, it was +0.2% versus consensus of -0.2%.

            Weekly jobless claims rose 13,000 versus projections of 6,000.

            The June Philadelphia Fed manufacturing index was reported at 4.7 versus expectations of 0.8.

            The first quarter US trade deficit was $124.7 billion versus an anticipated $125.0 billion.


            The false narrative of big government (medium and a must read):

            Jobs and the stock market (medium):

            China credit growth slowing (medium):



More on the devaluation of our education system (medium):

It is getting worse for Clinton (medium):

  International War Against Radical Islam

            A month of Islam in Britain (medium):

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