Friday, July 8, 2016

The Morning Call--EU banking problems keep getting worse

The Morning Call


The Market

 The indices (DJIA 17895, S&P 2097) had a pretty volatile day, opening big to the upside then trading down and rebounding to end with a minor loss. Volume fell again; breadth was stable.  The VIX was down fractionally, remaining below its 100 day moving average.  The lower boundary of its short term trading range is 12.5.

The Dow closed [a] above its rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within its 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 its 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 unchanged.  It is remains above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends.

GLD was slightly lower, ending above its 100 day moving average and within short and intermediate term uptrends.  Next resistance is the upper boundary of its long term downtrend; now at circa 139. 

Bottom line: despite the indices initial rally above the last lower high, they closed below it.  So very short term the downtrend continues.  That said, everyone awaits today’s nonfarm payroll number which will likely prompt a move---I just don’t know which way.

That said, the Averages are within short and intermediate trading ranges.  The issue is the direction of momentum.



            The string of upbeat US economic stats continued yesterday with the June ADP private payroll report and weekly jobless claims both coming in quite positive.  Less encouraging was June retail chain store sales.  But overall, we are heading for a second week of improving US datapoints.     

            Overseas, the numbers weren’t quite as promising as May UK industrial output fell and May German industrial output declined.

            ***overseas, June UK retail sales fell 5.1%; May German and Japanese trade surpluses declined.

            Much more concerning was the news flow on the gathering EU banking crisis:

(1)   another German bank near insolvency/

(2)   sovereign credit ratings keep deteriorating (short and a must read):

Bottom line: the US economic numbers are on a two week sizz.  That clearly raises the hope that the economy could be stabilizing; but right now, hope is all it is.  Meanwhile, across the pond, conditions continue to deteriorate especially in the EU banking sector which is overleveraged on an asset base that is riddled with nonperforming loans.  Unfortunately that is not all: (1) the UK property companies are folding like cheap umbrellas and (2) the credit agencies are having a field day slashing ratings. 

That said, investors are tip toeing through the tulips in search of candy canes, daisies and unicorns; so, in their minds, none of the above appears to be a problem.  As if. 

            Given the current price levels, it is an excellent opportunity to sell a portion of your winners and all of your losers.

            Five bricks in the wall of worry (medium):

            My thought for the day: It is easier to make up opportunity costs than actual losses.  In other words, you can make up profit you didn’t make because you didn’t buy a stock that went up easier than you can make up an actual loss that you suffered.  And the reason is simple---you have more money to use to make up the opportunity cost than to recoup an actual loss.  That is why our Stop Loss Discipline is so valuable.  It forces you to ignore the emotion that is attached to admitting that you were wrong.  Which is worse admitting that you wrong or losing money? 

       Investing for Survival
            The perils of benchmarking your portfolio.
    News on Stocks in Our Portfolios

   This Week’s Data

            June retail chain store sales were mixed.

            June nonfarm payrolls rose 287,000 versus expectations of an increase of 180,000.


            Globalization has changed the rules (medium):

            US commercial bankruptcies skyrocket (medium):



  International War Against Radical Islam

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