Thursday, July 21, 2016

The Morning Call--It is a big news day

The Morning Call


The Market

The indices (DJIA 18595, S&P 2173) resumed their advance.  Volume remains low, breadth strong.  The VIX (11.7) is in a short term downtrend and is nearing the lower boundary of its intermediate term trading range (10.3).

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 uptrend {17282-19032}, [c] within intermediate term uptrend{11243-23973} and [d] in a long term uptrend {5541-19461}.

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 uptrend {2023-2262}, [d] within its intermediate term uptrend {1903-2505} and [e] in a long term uptrend {862-2246}. 

The long Treasury fell, but continued to trade above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends. 

GLD was down 1.4%, ending above its 100 day moving average and within short term and intermediate term uptrends but right on the lower boundary of that developing very short term uptrend I mentioned yesterday.

Bottom line:  prices aren’t staying down long, are they?  The momentum is clearly to the upside.  In addition, the long Treasury is in retreat.  True, it remains in uptrends across all timeframes; but it can fall another 7% and not even break its very short term uptrend.  The point being that there is a lot of room left for stocks to rally and TLT to fall before there would be anything technically amiss.  A challenge of the Averages’ upper boundaries of their long term uptrends (19481/2246) seems highly likely, though I believe that it will be unsuccessful.

            Potential bull trap? (medium):



            Yesterday was another slow one for economic data.  In the US, mortgage and purchase applications were down.  Overseas, the UK unemployment rate hit an eleven year low.

            As slow as the first three days of the week have been, today will be a barn burner with five US datapoints reported and an ECB meeting.  Of course, no matter what the results, given the current environment, both good and bad news will likely be interpreted positively by the Market. 

            ***overnight, the ECB leaves rates unchanged (what a surprise); the Bank of Japan said that there was no need for ‘helicopter’ money; China suspended reporting two key economic indicators; June UK retail sales declined.

            Bottom line: the Market seems to be now in a sweet spot as the US economic stats are improving and the Fed reticent to raise rates.  I know that I have said this a hundred times, but (1) a recovering economy won’t change our Valuation Model one iota.  The assumptions in that Model are for an economy growing at below average long term secular rate.  That hasn’t changed; indeed, the risk has been that the US was sliding into a recession.  The chance that it might not, doesn’t mean that equities are worth more all of a sudden, (2) however, given the gross mispricing and misallocation of assets, a tightening in monetary policy will, in my opinion, have an equal and opposite impact on asset pricing and allocation.

            So my take is that while investors may appear to be getting jiggy over better economic numbers, what really counts is the absence of any Fed tightening.  The problem is that if the economy really is mending, the eggheads in the central banks will start tightening sooner or later.  The point being that investors can’t have both for very long.

            Don’t chase price.  Use current valuations to sell a portion of your winners.  
            As of last night, 14% of S&P companies have reported earnings, 64% beat estimates but earnings were down 4.4%.

            My thought for the day:  another cognitive bias of investors that it relevant today is recency bias, that is, the tendency to extrapolate recent events far into the future.  For instance, surveys reveal that market strategists recommended weighting in stocks peaked near the popping of the internet bubble and the start of the collapse in the financial system.  Need I say more?

            The ECB may be running out of options on its bond buying program (medium):

            For the optimists (medium):
    News on Stocks in Our Portfolios
Illinois Tool Works (NYSE:ITW): Q2 EPS of $1.46 beats by $0.06.
Revenue of $3.43B (flat Y/Y) beats by $20M.

Sherwin Williams (NYSE:SHW): Q2 EPS of $4.06 misses by $0.10.
Revenue of $3.22B (+2.9% Y/Y) misses by $60M.

Sherwin Williams (NYSE:SHW) declares $0.84/share quarterly dividend, in line with previous.

Qualcomm (NASDAQ:QCOM): FQ3 EPS of $1.16 beats by $0.19.
Revenue of $6.03B (+3.4% Y/Y) beats by $450M

BlackRock (NYSE:BLK) declares $2.29/share quarterly dividend, in line with previous.


   This Week’s Data

            Weekly jobless claims fell 1,000 versus expectations of an 11,000 increase.

            The July Philadelphia Fed manufacturing index was reported at -2.9 versus estimates of +5.0

            The June Chicago national activity index came in at +.16 versus the May reading of -.51.


            Another bad month for trucking (short):

            Art sales tumble (medium):

            Debt’s impact on stocks, bonds and gold (short):

            The cost of tax breaks (short):

            Rising credit risks (medium):



Some thoughts on plagiarism (medium):

Quote of the day (short):

Update on global warming (short):

  International War Against Radical Islam

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