Wednesday, August 3, 2016

The Morning Call--The key is faith

The Morning Call


I am having minor surgery today; but I will under a general anesthetic and I am not sure of the pain level afterwards.  Doctors always tell the worst case just so they look good when you don’t feel so bad.  The point being that I am not sure how thorough tomorrow’s Morning Call will be.

The Market

The indices (DJIA 18313 S&P 2157) fell below their recent tight trading ranges yesterday.  Volume was up but not that much; breadth continued weak.  The VIX jumped another 7 ½%, closing back above the lower boundary of its former short term trading range.   I remain on the fence on this directional call.   I would note that on Monday it made a higher low---a possible sign that the lows have been made.

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 {17430-19176}, [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 another 1%, ending above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends.  However, it has made a lower high, a sign of a loss of upward momentum. Plus fixed income securities across the board are suffering declines.

GLD was up, ending above its 100 day moving average and within very short term, short term and intermediate term uptrends.  In addition, it is approaching a key Fibonacci level which happens to coincide with the recent high,

            And (medium):

Bottom line:  the indices finally broke of their recent very tight trading range.  Unfortunately, it was to the downside.  That said, breadth has been weak of late, so a Market decline is not surprising.  I don’t think that this has any implications for further downside; though clearly the Averages could a lot more and not even challenge their short term uptrends.  

I remain bothered by the simultaneous volatility in the VIX and the bond, gold, oil and currency markets.  Something seems amiss.

            Cash on the sidelines (short):



            Yesterday’s US economic data was mixed: month to date retail chain store sales were disappointing, July vehicle sales were slightly ahead of expectations while June personal income was less than anticipated and personal spending was more (the last two being primary indicators).

            Overseas, July UK construction activity declined; the Japanese government provided a few more details on the muddled fiscal program that it announced last week and they were not well received.

            ***overnight, the July UK services PMI declined.
            That is not all that was distressing investors as EU banks stocks got hammered in the wake of the last week’s Casper Milquetoast ‘stress’ test.

                Further, the narrative continued that started last week focusing on the lack of meaningful action (i.e. more QE) during the meetings at the Fed, the BOJ and the ECB in the face of weak economic data.

                The ultimate backstop (medium):

            The unhappy ending of QEInfinity (medium):

            Bottom line:  the economies both here and abroad are struggling.  But even if they weren’t, it would make little difference with respect to Market overvaluation. Stocks are very expensive by almost any fundamental metric; and a ten percent correction won’t solve that problem.  

The single most important factor sustaining current valuations is the unquestioning faith the Markets have in the central banks’ ability to continue to push prices even higher.  It is possible that this proposition could become an eternal truth; but I doubt it for no other reason than that all good things must come to an end (and logic). 

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; 71% beat profit expectations, 57% beat revenue forecasts.

            More on valuation (short):

            Five questions for the bulls (medium):

            The latest from Doug Kass (medium):

            My thought for the day: for most investors, pursuing an investment that requires someone else to lose for them to win is not a good use of their time or money.  Over the long run, stocks and bonds have generated positive returns, making money for everyone invested in them.  However, options (derivatives) are a zero sum game---somebody has to lose for the investor to win.  That is a much more difficult strategy for consistently making money than one in which everyone wins.
         Investing for Survival
            This article is only for those who like to get in the weeds of economic theory.  It is a synopsis of Hyman Minsky’s theory that stability breeds instability (medium):

    News on Stocks in Our Portfolios
Expeditors (NASDAQ:EXPD): Q2 EPS of $0.63 beats by $0.04.
Revenue of $1.48B (-12.4% Y/Y) misses by $40M.

Ecolab (NYSE:ECL): Q2 EPS of $1.08 in-line.
Revenue of $3.32B (-2.1% Y/Y) in-line  



Emerson Electric (NYSE:EMR) declares $0.475/share quarterly dividend, in line with previous.

Automatic Data Processing (NASDAQ:ADP) declares $0.53/share quarterly dividend, in line with previous.


   This Week’s Data

            Month to date retail chain store sales grew less than in the prior week.

            July vehicle sales came in at 17.9 million units versus expectations of 17.3 million; but US automakers stock got whacked.

            Weekly mortgage applications fell 3.5% while purchase applications were down 2.0%.

            The July ADP private payroll report showed job gains of 7,000 versus estimates of a decline of 7,000.


            A thought provoking take on low interest rates (short):



Update on Obamacare (medium):

Update on student loans (short):

David Stockman on violence in the US (medium):

  International War Against Radical Islam

            US airlifts $400 million to Iran (medium):

Visit Investing for Survival’s website ( to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

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