Tuesday, June 28, 2016

The Morning Call---The indices are challenging multiple support levels

The Morning Call

6/28/16

We leave first thing tomorrow morning seeking heat relief in the mountains.  Clearly, there is a lot going on.  So I will be paying close attention to the Markets. If I take any actions in our Portfolios, I will send out a Subscriber Alert.  Have a great Fourth of July.

The Market
         
    Technical

The indices (DJIA 17140, S&P 2000) had another rough day, though they did finish off the lows of the day.  Volume was high; breadth terrible.  The VIX was down 8%, pretty unusual on such a big down day.  However, remember it was up 49% on Friday; so it likely just got ahead of itself.

The Dow closed [a] below its rising 100 day moving average, now support; if it remains there through the close on Wednesday, it will revert to resistance, [b] below its 200 day moving average, now support; if it remains there through the close on Thursday, it will revert to resistance, [c] below the lower boundary of its short term trading range {17498-18726} for the second day; if it remains there through the close today, it will reset to a downtrend, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5541-19413}.

The S&P finished [a] below its rising 100 day moving average, now support; if it remains there through the close on Wednesday; it will revert to resistance, [b] below its 200 day moving average, now support; if it remains there through the close on Thursday, it will revert to resistance, [c] below the lower boundary of its short term trading range {2037-2110}; if it remains there through the close on Wednesday; it will reset to a downtrend, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {830-2218}. 

The long Treasury was up 2 ½% on heavy volume.  It blew through that very key Fibonacci level, setting up a further advance.  It remained above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends.

GLD was strong on big volume.  It finished above the upper boundary of its short term trading range for the second day; if it remains there through the close today, it will reset to an uptrend.  It also ended above the upper boundary of its intermediate term trading range; if it remains there through the close on Thursday, it will reset to an uptrend. If all that occurs, the next resistance level is at the upper boundary of its long term downtrend (140).
Bottom line:  both of the Averages are challenging multiple support levels.  If these all get confirmed, then the next levels to watch are the lower boundaries of their respective intermediate term trading ranges (15842/1867).  The operative word being ‘if’.  It is too soon to be buying. 

That said, stocks are in very oversold territory, so don’t be surprised by a rally near term.  It is not a buying opportunity.

I am still paying particular attention to GLD because it busted through two major resistance levels on Friday.  We got follow through yesterday; so the clock is now ticking on a major change in trend.

    Fundamental

       Headlines

            Yesterday’s US economic data was a mixed lot: the May trade balance was slightly larger than expected, the June Markit flash services PMI was fractionally higher than anticipated and the June Dallas Fed manufacturing index was not as bad as had been forecast.

            Overseas, S&P lowered the UK’s credit rating.

            Still investor focus remains on the implications of the Brexit.

            Soros on the Brexit (medium):

            Is Brexit a hopeful sign (medium)?

            A rumored proposal that appears to be eurocrats response to Brexit (medium):

            Bottom line: the bad news is that nobody has a clue what those implications are.  The good news is that the concerns about Brexit are having an impact on stock valuations---which as you know, our Valuation Model rate as extremely high.  Nevertheless, there is a long way to go get back to Fair Value.  Patience.

            I am very close to adding to our GDX holding.

            The more it hurts, the more you make (medium):

            My thought for the day:  I have been bludgeoning all forms of fee seekers in the investment business as parasites.  But I want to take a step back and look at the other side.  In some cases, investors need a pro: a tax accountant and/or lawyer if the investor has a complicated income/tax picture or the need for proper estate planning. 

            In addition, there are those investors are too busy with their business or would rather play golf and just don’t want to mess with managing the day to day handling of their assets.  For investors with $1 million or less, a well-diversified portfolio on ETF’s can provide the right combination of risk/reward at a very inexpensive price.  Larger investors have any number of choices among investment management firms.  But you need to shop around.  Pay attention to price and don’t get suckered by so called proprietary strategies that promise outsized returns.  Remember, if the strategy worked that well, they would be lying on the beach in Bermuda instead of trying to sell you something.

       
       Investing for Survival
   
            Warning signs of a bad financial advisor.

    News on Stocks in Our Portfolios
 
FactSet Research Systems (NYSE:FDS): FQ3 EPS of $1.64 beats by $0.03.
Revenue of $287.5M (+13.0% Y/Y) in-line.

Economics

   This Week’s Data

            The June Markit flash services PMI was reported at 51.3 versus 51.2 recorded in May.

            The June Dallas Fed manufacturing index came in at -7.0 versus the -13.8 reading in May.

                The third revision of first quarter GDP showed growth of 1.1% versus expectations of 1.0%; the GDP price index was +0.4% versus estimates of +0.6%; corporate profits were -4.3% versus -3.6% in the second revision.

   Other

            S&P downgraded the UK credit rating from AAA to AA.

            Just to brighten your day---John Mauldin’s latest (medium/long):

Politics

  Domestic

  International War Against Radical Islam


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