Wednesday, June 22, 2016

The Morning Call--Yellen confirms her 180

The Morning Call


The Market

The indices (DJIA 17829, S&P 2088) milled around yesterday, apparently investors sitting on their hands awaiting tomorrow’s Brexit vote. Volume was quite low---not surprising in a wait and see Market.  Breadth continued to improve.  The VIX was up, finishing 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 rising 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 rising 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 fell again, but remained above its 100 day moving average and within short, intermediate and long term uptrends.

GLD (120.8) declined 2%.  While it closed above its 100 day moving average, it is starting to act squirrelly again.  A move to the 118.9 level (which is a key Fibonacci level as well as that of its 100 day moving average) will likely prompt me to take some profits in our GDX holding (Aggressive Growth Portfolio).

Bottom line: intraday volatility eased a bit yesterday.  In the absence of some stunning statement from Yellen’s second day of testimony, today will likely be a repeat as everyone seems focused on tomorrow’s Brexit vote.  Trading on Thursday and Friday should be interesting though I have no idea what it might look like.  I am still assuming that until the lower boundaries of the Averages short term trading ranges are successfully challenged, momentum is to the upside.



            Yesterday was another dull day.  Only one US economic stat: month to date retail chain store sales improved.  No international economic news either.  There was a decision by the German high court that in essence allows the ECB bond buying program to continue.

            The major headline item was the first day of Yellen’s congressional testimony.  In it she worried about everything short of WWIII.  But as usual the concerns themselves were more of the same ‘on the one hand, on the other hand’ horses**t designed to confuse and confound.  

On the one hand, she is worried about a Brexit, uncertainties facing the US economy, global turbulence and possible congressional reform of the Fed.

On the other hand, these two gems:

(1)   high stock valuations [this was spelled out much more clearly in Yellen’s written report versus her testimony].  Are you kidding me?  After spending the last eight years trying to drive asset prices higher via lower and lower interest rates, now the Fed is worried about those higher asset prices?  Of course, it is not concerned enough to do the one thing that would drive asset prices down [i.e. raise interest rates].   Talk about trying to cover your ass when the hand writing is on the wall---‘but we said that stock valuations were stretched.  See we really are omniscient’.

(2)   the Fed waiting too long to raise rates (Janet, darlin’, my two year old granddaughter knows that the Fed has waited too long to raise rates.  Who are you kidding?).

Confused?  Probably what she intended.

Yellen’s testimony:

One thing not discussed by Yellen or anyone else is the long forgotten focus on base money which lost its importance when its formulation was changed.  That said, it is currently shrinking and that used to be viewed as a sure sign that the Fed was tightening.  (note, base money doesn’t include all those reserves on bank balance sheets courtesy of QE because those reserves aren’t being lent).  I am not suggesting alarm; but I do wonder if a shrinking monetary base has no meaning.

            Did the Bank of Japan just join the naysayers of central bank policies? (short):

            Will the ECB be next? (short):

Bottom line: ‘at the moment, all eyes are on the Brexit vote.  So barring a really extraordinary exogenous event, fundamentals are likely to take a back seat until Thursday.  But even if the ‘remain’ vote prevails, the fundamentals are still lousy.

            But no one is paying any attention to problems in China (medium):

Nonetheless, the overriding circumstance at this moment is that stocks remain dramatically overvalued even under the most promising economic/political scenario.  Hence, I continue to believe that this is the moment to sell a portion of your most successful investments and to get rid of your losers.’

            My thought for the day:  in one note last week, I focused on buying dividend growth---not yield but growth.  I also made the point that buying dividend growth at the right price was an important part of the equation.  This article puts some numbers to that concept.  If you are a dividend growth buyer, this article is an absolute must read:

       Investing for Survival
            How the experts behave:

    News on Stocks in Our Portfolios

   This Week’s Data

            Month to date retail chain store sales grew at a faster pace than in the prior week.

            Weekly mortgage applications rose 2.9% but the more important purchase applications fell 2.0%.




The release of the first hacked document from the Clinton Foundation (medium):

  International War Against Radical Islam

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