The Morning Call
The Market
Technical
The
indices (DJIA 14559, S&P 1563) had a great day. The Dow finished above its former all time
high (14190) and the upper boundary of its short term uptrend (13803-14492)
while the S&P closed below its comparable levels (1576) and
1508-1582). Both remain within their
intermediate term uptrends (13588-18588, 1438-2032) and their long term
uptrends (4783-17500, 688-1750).
The
important takeaway is that the Averages are still not in sync with the S&P
not confirming the Dow’s break out to new highs. This leaves open the question of whether the
Market is topping or pausing before another upward assault. I continue to believe that (1) stocks are
topping, (2) the S&P can still make a challenge of the 1576 level and (3)
even if it breaks out to the upside, the reward is less than 10% and the risk
is substantial.
Volume
declined; breadth was mixed with the flow of funds and on balance volume
indicators weak. The VIX fell, remaining
within its short and intermediate term downtrends.
GLD
was down, staying within its short term downtrend. However, the developing support level
continues in tact.
Bottom line: as
frustrating as it may be, the indices remain out of sync; and hence, Market
direction is in question.
The
historical performance of stocks in April (short):
Here
is a positive technical indicator (short):
Fundamental
Headlines
Lots
of stats yesterday; and unfortunately, they were not all that great. Durable goods orders were the bright spot
while weekly retail sales, January home prices, February new home sales,
consumer confidence and the Richmond Fed manufacturing index all fell short of
expectations. This is really the first bad data day in a long time; so I see no
reason to get concerned.
This
is a great piece on the good, the bad and the ugly of the Cyprus
solution (medium and a must read):
Nobody
in the EU (except the Germans) is happy with the Cyprus
bail out, especially the capital controls:
The
Cypriot youth:
The French and Spanish:
The
Brits:
But as hinted to
in an earlier link, the Russians seem to be fine. They snuck out the back door (medium):
Satyajit
Das on Cyprus
(medium):
The
problem with the euro in one short, easy lesson (short):
http://www.zerohedge.com/news/2013-03-27/eurozone-east-german-motorcycle
http://www.zerohedge.com/news/2013-03-27/eurozone-east-german-motorcycle
Bottom
line: as dismal as much of the above reading is, US investors were clearly
upbeat. Part of that optimism is
understandable: (1) the uncertainty over depositor insurance and capital
controls will likely drive money to the US
and (2) as long as the EU financial system is in a state of flux, the Fed is
apt to keep the pedal to the metal.
As I indicated
yesterday, I am also encouraged but for somewhat different reasons---though I
do agree that foreign money inflow can
be a positive. I am positive because the
eurocrats have finally taken steps that are half way sensible, i.e. holding
risk takers versus taxpayers responsible for bank defaults. (***in fact, if the
US had handled
its financial crisis using the Cyprus
template, we would have a sounder banking system than we do now.) To be sure, it is not all perfect (capital
controls, not forcing the banks to go through bankruptcy court); but it is a
major step in the right direction.
Yes, there is
going to be pain that likely extends far beyond Cyprus . But there was going to be pain anyway, sooner
or later. In my opinion, anyone who
assumed that after years of totally irresponsible fiscal policies that somehow the
EU ‘muddling through’ scenario would not involve some pain, at times severe, is
suffering from an acute case of naiveté.
So I guess where
I part company with those who were pumping up stock prices yesterday is that I
believe (assuming the EU/ECB doesn’t slap another monetary band aid over the
next sovereign/bank problem but uses the Cyprus template) that the pain will
come near term. True that will mean
flows into the dollar which will be a positive.
But there will still likely be heartburn sufficient enough to sound the
derivative counterparty alarms. Plus Europe
will continue to deteriorate economically and that is not going to help the
profits of US companies. I don’t believe
that this combination of events will play well in an overvalued US
stock market.
The
latest from Nomura (short/medium):
The
latest from Lance Roberts (medium):
Pension
fund rebalancing could be a problem for stocks (medium):
http://www.zerohedge.com/news/2013-03-26/q1-2012-deja-vu-pension-fund-rebalancing-suggests-window-un-dressing-could-hurt-stoc
http://www.zerohedge.com/news/2013-03-26/q1-2012-deja-vu-pension-fund-rebalancing-suggests-window-un-dressing-could-hurt-stoc
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