Thursday, July 7, 2016

The Morning Call--the Fed delivers another dud

The Morning Call


The Market

The indices (DJIA 17918, S&P 2099) bounced yesterday. Volume fell; breadth improved.  The VIX (14.9) fell 4 ½%.  It remains 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 up fractionally on heavy volume.  It is now above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends.

GLD was strong on volume, 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:  after last week’s sharp rally, both of the Averages are back within trading ranges.  The very short term question, will they continue to advance or make a third lower high?



            Yesterday’s US economic data was very upbeat: weekly mortgage and purchase applications, month to date retail chain store sales, the June Markit services PMI and the June ISM nonmanufacturing index were all above expectations.  So week is off to a good start.

            Overseas, there was only one number: May German factory orders were flat.
            ***overnight, May UK industrial output fell 0.5%, but that was better than expected; May German industrial output declined 1.3%.

The problems Italy could cause (medium):

            The problems of the emerging markets (medium):

Another highlight of the day was the quintessential ‘on the one hand, on the other hand’ narrative of the minutes of the last Fed meeting---the bottom line of which was that things are awesome but not awesome enough to raise interest rates.  Talk about drivel.  This takes the cake.  If this massive waste of paper and time gives you any inkling of the direction of Fed policy, then you are a better man/woman than I.  Of course, as long as it didn’t indicate the remotest chance of a rate hike, then the pot smoking, QEInfinity devotees are happy.  The link below is to the statement and a summary analysis of the minutes if you can endure it.  But you will be equally enlightened and have a lot more fun spanking your monkey.

            Another gem from David Stockman on the Fed (medium):

            Can rates go lower (short):

            Mohamed El Erian on low interest rates (medium):

            Bottom line: the economic numbers continue their very short term improvement. That is the only positive in an otherwise bleak outlook: the Fed is still unable to locate its own posterior with both hands, global economic data continues to weaken and the EU banks continue to move toward crisis.  I guess one out of four ain’t bad.  But it hardly justifies current valuations.

            The latest from Jeff Gundlach (short):

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

                My thought for the day:  Up until the day the Market turns south, everyone wants to chase performance, ignore risk, discount lousy balance sheets and poor return on equity, forget about diversification, remain fully invested, focus on return on capital instead of return of capital and brag about their winners.  They can’t stand the thought of being up 5% in a 10% Market rally.   They are convinced that this time it’s different.  And then it’s not.  One guy gets out the door and the rest are slashing their wrists.

       Subscriber Alert
            The stock price of Paychex (PAYX-$60) has traded into its Sell Half Range.  Hence, at the Market open the Dividend Growth Portfolio will Sell Half of this holding.         


       Investing for Survival
            Positioning versus construction.

    News on Stocks in Our Portfolios
            PepsiCo (NYSE:PEP): Q2 EPS of $1.35 beats by $0.05.
Revenue of $15.39B (-3.3% Y/Y) beats by $20M.


   This Week’s Data

            Month to date retail chain store sales growth was slightly higher than the prior week.

            The June PMI services index came in at 51.4 versus expectations of 51.3.

            The June ISM services index was reported at 56.5 versus forecasts of 53.3.

            The June ADP private payroll report showed an increase of 4,000 jobs versus consensus of a decline of 23,000.

            Weekly jobless claims fell 16,000 versus estimates of a 1,000 rise.



An interesting thought from Greg Mankiw (short):

Rebelling against the ‘experts’ (medium):

Hillary and ‘intent’ (short):


            John Mauldin on all things Europe (long as usual but a good read):

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