Friday, July 15, 2016

The Morning Call--Sit back and enjoy

The Morning Call


We are leaving this morning to visit our daughter and her family.  Back on Monday.

The Market

The indices (DJIA 18506, S&P 2152) advance seems relentless, though volume remains anemic and the VIX  can’t make good on its challenge of the lower boundary of its short term trading range  (after trading below it intraday, then finishing above it).  Breadth was stronger than horseradish.

The Dow closed [a] above rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {17250-19000}, [c] above the upper boundary of its intermediate term trading range {15842-18350}; if it remains there through the close next Monday, it will reset to an uptrend and [d] in a long term uptrend {5541-19431}.

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 {2011-2250}, [d] above the upper boundary of its intermediate term trading range {1867-2134} for the fourth day, resetting to an uptrend {1898-2500} and [e] in a long term uptrend {862-2246}. 

The long Treasury got whacked again (-1.5%), 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 fell, ending above its 100 day moving average and within short term and intermediate term uptrends.

Bottom line:  the indices have made very short work of the resistance from the upper boundaries of their short and intermediate term trading ranges---which, as you know, I had not expected.  So technically, we need to shift our focus to the upper boundaries of their long term uptrends.  Since by definition there is no resistance between here and there, it seems logical that spread will be closed fairly quickly. 

Bears capitulate (short):

The lack of volume still bothers me; but at this point, it seems to be irrelevant. I am also concerned about the short term poor performance of TLT in the midst of a QE/’helicopter’ money ramp in stock prices.  That said, it (139) has run so far, so fast that it could fall to 131 before it even challenges its very short term uptrend and 125 before it challenges its short term uptrend.  So technically speaking, my worry is a bit misplaced.


            The US economic data yesterday were mixed: weekly jobless claims were lower than expected; but PPI, both the headline and ex food and energy numbers, were hot, i.e. a lot higher than estimates.  Aside from not being a positive under almost any scenario, I would think that the PPI stats would have the Fed seriously reconsidering its ‘no rate increase’ narrative.  But it is not; as yesterday three FOMC members said that there was no hurry in raising rates.

            Corporate bankruptcies set to reach new high (short):

            Overseas, the Bank of England did not lower rates or increase its bond buying facility as anticipated; however, it threw the QEInfinity crowd a bone, saying it expected to ease after its August meeting.     

                ***overnight, China reported second quarter GDP grew at 6.7%, slightly ahead of forecast; but (medium):

            Bottom line: stocks are very generously valued and likely to get more so.  However, wrong it may have been for me to act on our Sell Half discipline and generate cash in our Portfolios, I believe that it would be doubly wrong to try to get back in at current price levels.  There is nothing to do but sit back and enjoy the ride.

            By the way, unless something significant occurs that causes me to alter our Valuation Model, I will do the same thing the next time around.  I will also continue to use current prices to lighten up on stocks that trade into the Sell Half Range.

            My thought for the day: Now is the time to be cognizant of what is called the optimism bias, which basically means that individuals have subjective confidence in their own judgments that is measurably greater than their objective accuracy.  A great example is that in this day of grade inflation in our educational system, an abnormally high percentage of students believe that they are of above average intelligence.  Another more relevant illustration, which I linked to in an article yesterday, is that a majority of money managers believe that they will produce above average returns (versus their peers) in the coming year.  The laws of mathematics says that neither of the above are even remotely possible. 

In the same vein, those aforementioned money managers believe that their above average returns will be not just better than their competitors but will also be above the historical average annual returns.   Maybe they will; and maybe we all live at Lake Wobegon.  But I suggest that this is especially dangerous thinking when stocks are (1) at all-time highs and (2) 3-4% away from the upper boundaries of an 84 year uptrend.

       Investing for Survival
            Benjamin Graham on financial advisors.

    News on Stocks in Our Portfolios
PepsiCo (NYSE:PEP) declares $0.725/share quarterly dividend, in line with previous.


   This Week’s Data

            June CPI rose 0.2% versus expectations of up 0.3%; ex food and energy, it was up 0.2%, in line.

            July retail sales surged 0.6% versus forecasts of up 0.1%; ex autos, they were up 0.7% versus consensus of up 0.3%.

            The July NY Fed manufacturing index came in at .55 versus estimates of 5.00.


            The latest from Lacy Hunt (medium):



  International War Against Radical Islam

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