Friday, August 5, 2016

The Morning Call--Bank of England eases, the Market yawns

The Morning Call


Our number one grandson arrives today for a weekend visit on his way back to college.  No Closing Bell.  See you on Monday.

The Market

The indices (DJIA 18352, S&P 2164) did little (Dow down slightly, S&P barely up) yesterday.  Volume was nonexistent and breadth was weak.  The VIX fell another 3 ½%, closing back below the lower boundary of its former short term trading range.   I remain (confused and) 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 {17465-19201}, [c] in an intermediate term uptrend {11294-24121} 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 {2046-2285}, [d] in an intermediate uptrend {1915-2517} and [e] in a long term uptrend {862-2246}. 

The long Treasury rose again, ending above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends.  However, it remains below the prior lower high---not what you want to see.

GLD rose slightly, finishing above its 100 day moving average and within very short term, short term and intermediate term uptrends. It is still struggling to challenge a key Fibonacci level.

Bottom line:  the indices still can’t generate any follow through from Tuesday’s decline, which is another plus in the pin action of the last couple of weeks.  The technical evidence continues to point to more upside.

That said, I remain bothered by the simultaneous volatility in the VIX and the bond, gold, oil and currency markets.  Plus the aggressive action by the Bank of England yesterday was greeted with a yawn---that’s different.  Something seems amiss.


            Yesterday’ US economic data was mixed: weekly jobless claims were greater than expected. June factory orders were down less than anticipated but more than in May. July retail chain store sales were lousy.           

Overseas, there was no data.  But the Bank of England lowered key interest rates by 25 basis points and adopted a much larger QE bond buying program than was anticipated.  I wonder if it will work any better than all the other QE’s?

            And it is not like it has been doing nothing (short):

            A different perspective on QE and stock prices (short):

            ***overnight, German factory orders plunged 3.1% while Italian industrial production fell 0.4%,

Bottom line:  I was a bit surprised that the investors virtually ignored the more than expected aggressive monetary moves by the Bank of England.  It is clearly a different reaction than in prior occurrences.  It is tempting to assume that the central banks are starting to lose their mojo with the Markets.  But to be fair, (1) the BOE has not been as aggressive user of QE as other major central banks; so I guess that it could be argued that it has room to run before it ‘catches up’ with its global brethren and (2) the July nonfarm payroll is due today and that has always been a much watched indicator which I am sure kept some investors on the sidelines.  Those two factors notwithstanding, this move is still going to add to pot of global liquidity and likely assist in the furtherance of asset mispricing and misallocation.

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.’

                Earnings season update: two thirds of the S&P companies have reported; earnings in aggregate are down 2.8%.

            Compare the reported earnings and unemployment data with the actual US Treasury tax receipts (medium and a must read):

            Debt to EBITDA at record highs (short):

            My thought for the day:  Every day you read economic projections, stock market projections, and individual stock profit projections.  Most of them are presented to the last cent or last 1/10th of one percent implying great intellectual rigor.  When in fact they have proven time and time again to be of almost little informational value.  Just think of the statistical crap the Fed, the IMF, the CBOE and brokerage firm after brokerage firm generates daily.  By the way, I do not exclude myself from this company.
That is why our Portfolios are diversified and have a Price (Stop Loss) Discipline.

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    News on Stocks in Our Portfolios
Ecolab (NYSE:ECL) declares $0.35/share quarterly dividend, in line with previous

EOG Resources (NYSE:EOG): Q2 EPS of -$0.38 beats by $0.10.
Revenue of $1.78B (-27.9% Y/Y) beats by $170M.


   This Week’s Data

            June factory orders fell 1.5% versus consensus of -1.8%.

            July retail chain store sales were disappointing.

            July nonfarm payrolls rose 255,000 versus expectations of up 185,000.

            The June trade balance was -$44.5 billion versus estimates of -$43.0 billion.




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