Tuesday, July 11, 2017

The Morning Call--What will Janet say this time?

The Morning Call


The Market

The indices (DJIA 21408, S&P 2427) were mixed (Dow down, S&P up) but in very small moves (in fact, the Dow was one point below its close the day before I left and the S&P is down eleven points).  Volume rose slightly but from a low level and breadth was weak.  They retain their upward momentum as defined by their 100 and 200 day moving averages and uptrends across all timeframes.  At the moment, I see nothing, technically speaking, to inhibit the Averages’ challenge of the upper boundaries of their long term uptrends---now circa 24198/2763. 

The VIX (11.1) fell fractionally. In my absence, it failed to successfully challenge the lower boundary of its intermediate term trading range (a seventh failure).  It remains below its 100 and 200 day moving averages.

The long Treasury was up, but not enough to recover above either its 200 day moving average (if it remains there through the close today, it will revert from support to resistance) or the lower boundary of its very short term uptrend---negating the trend.  This is the first sign that investors may be starting to worry about inflation/stronger economy/more hawkish Fed---‘first sign’ being the operative words.

The dollar rose slightly, but remains in a very short term downtrend and below its 100 and 200 day moving averages---which as I suggested yesterday is a bit at odds with weakness in the bond market.

GLD was also up, but did little to enhance an otherwise lousy chart.

Bottom line: the Averages meandered through another lazy, low volume summer day, having been flat for the last two weeks.   That suggests that there are few concerns and, in general, everyone is happy with what they own.  I have no insight into how long this lethargy will last; but it seems reasonable to assume that, technically speaking, the indices next big move will be to challenge the upper boundaries of their long term uptrends.
            On the other hand, bond investors have developed a case of the jitters, joining dollar and gold investors.


            Only one US economic datapoint yesterday: May consumer credit expanded more rapidly than expected.  Overseas, there was also one stat: June Chinese inflation was in line.  Little to dispel the notion of a faltering economy.

            There was more discussion of Fed policy than normal, likely linked to Yellen’s congressional testimony this week in which she will probably paint the numbers as she wants us to interpret them, irrespective of what they are actually telling us.

Unwinding the Yellen leveraged buyout (medium):

            The Fed’s dilemma (medium):

            Bottom line: the economy is struggling but the Fed will likely continue to tighten as long as the Market believes its bullsh*t.  As you know, I don’t believe that its attempt to normalize monetary policy will have much impact on the economy but could be the trigger for investor heartburn.

            This is a thoughtful article.  Barry Ritholtz is a favorite of mine and always has salient observations about the Market.  However in this piece, he poo poos bears’ case for a correction.  Notably absence is any mention of valuation metrics.  He downplays the plethora of risks cited as reasons for a sharp Market decline.  To be fair, the bulk of our Closing Bell discusses potential problems that could lead to an adjustment in valuation.  But it is important to distinguish between the rationale for selling a stock and the rationale for making a bearish Market call.  Our Portfolios own cash not because I am bearish on the Market (which as you know, I am) but because the valuations of many of our stocks have reached historically high levels that, to this point, could not be sustained.

            For the bulls (short):

       Investing for Survival

    News on Stocks in Our Portfolios
PepsiCo (NYSE:PEP): Q2 EPS of $1.50 beats by $0.10.
Revenue of $15.71B (+2.1% Y/Y) beats by $100M.


   This Week’s Data

            May consumer credit rose much more than anticipated.

            The June small business optimism index was reported at 103.6 versus expectations of 104.5.


            What happened to all those profits (medium)?

            Saudi Arabia violates the OPEC oil production agreement (short):



Quote of the day (short):

  International War Against Radical Islam

            Thoughts on US foreign policy (medium):

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