Tuesday, August 2, 2016

The Morning Call---Are the data starting to point down again?

The Morning Call


The Market

The indices (DJIA 18404 S&P 2170) drifted lower yesterday.  Volume fell and breadth continued weak.  The VIX rose 5%, remaining below the lower boundary of its former short term trading range.   I remain on the fence on this directional call.

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 {17412-19158}, [c] in an intermediate term uptrend {11277-24107} 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 {2041-2280}, [d] in an intermediate uptrend {1912-2514} and [e] in a long term uptrend {862-2246}. 

The long Treasury dropped 1.25%, ending above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends; but it has made a lower high---a sign of a loss of momentum. 

GLD was up, ending above its 100 day moving average and within very short term, short term and intermediate term uptrends. 

Bottom line:  the indices continue to consolidate in a very narrow trading range, indicating that we are likely to see more movement to the upside.  That said, I am puzzled by the simultaneous volatility in the VIX and the bond, gold, oil and currency markets.  Something seems amiss.

            The oil/equity divergence (short):



            The US economic data continued last week’s negative trend: while the July Markit manufacturing PMI was up from the prior month, both the July ISM manufacturing index and June construction spending (primary indicator) were disappointing.

            Overseas, July Chinese, EU and Japanese manufacturing PMI’s were down.  In Italy, their most insolvent bank received its third bailout in as many years (total E8 billion) and now has to raise another E5 billion (the bank’s current net worth is E1 billion).

                Overnight, July UK construction activity declined; the Japanese government provided a few more details on the muddled fiscal program it announced last week,

Bottom line: as you know, I think the big fundamental question right now is whether last week’s US economic data was a return to the ten month softening trend or was a hiccup in the prior month’s stabilization/uptrend.  Yesterday’s stats clearly supported the former, though they hardly resolved the issue. 

On the other hand, yesterday’s overseas economic numbers are indicating that last week’s slightly improvement in the global dataflow was an aberration. 

Of course, the real source of Market levitation has been the central banks.  Unfortunately, virtually all the major central banks had the opportunity to ease further last week and didn’t.  That potentially sets the Markets up for another hissy fit, if the data keeps deteriorating and the central banks remain neutral. 

Longer term, my story hasn’t changed.  Stocks are grossly overvalued.  Investors should accept as a gift the current opportunity to take some money off the table, be it from banking some profits from winners or getting rid of their losers.

            Update on stock valuation (medium):

            The latest from JP Morgan (medium):

            My thought for the day:  we live in a world in which huge financial institutions have massive research staffs and computer based quantitative strategies that analyze every nook and cranny of the global markets in search of the slightest edge in earning risk premia.  On a long term basis, that makes it very difficult not just for you and me but also those same institutions to gain any advantage in performance.

            However, in spite of that, volatility remains in all asset classes; and that provides the individual investor an opportunity keep up with the big boys (whose size limits their flexibility) by remaining well diversified across asset classes and using that volatility to rebalance (selling assets at the upper end of their historical valuation range and buying assets at the lower end of their valuation range).

    News on Stocks in Our Portfolios
Kimberly-Clark (NYSE:KMB) declares $0.92/share quarterly dividend, in line with previous.

Cummins (NYSE:CMI): Q2 EPS of $2.40 beats by $0.25.
Revenue of $4.5B (-10.2% Y/Y) in-line

Procter & Gamble (NYSE:PG): FQ4 EPS of $0.79 beats by $0.05.
Revenue of $16.1B (-2.7% Y/Y) beats by $270M

Emerson Electric (NYSE:EMR): Q2 EPS of $0.80 misses by $0.04.
Revenue of $5.13B (-6.7% Y/Y) misses by $190M.


   This Week’s Data

            July Markit manufacturing PMI was reported at 52.9 versus June’ reading of 51.3.

            The July ISM manufacturing index came in at 52.6 versus expectations of 53.2.

            June construction spending was down 0.6% versus an estimated rise of 0.6%.

                June personal income rose 0.2% versus forecasts of 0.3%; personal spending was up 0.4% versus consensus of 0.3%; the price deflator was up 0.1% versus projections of 0.2%.


            More on second quarter GDP (short):

            Still more (short):

            The new housing crisis (medium):




            Europe’s Brexit hangover (medium):

            Here is a thought exercise (short):

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