The Morning Call
The Market
Technical
Another
rough day in stock land. The indices
(DJIA 14537, S&P 1541) closed within all major uptrends: short term
(14095-14791, 1541-1615), intermediate term (13746-18746, 1456-2050) and long
term (4783-17500, 688-1750). However, as
you can see, the S&P closed right on the lower boundary of its short term
uptrend; so a challenge may be eminent.
In addition, the Averages remain out of sync with respect to their
former all time highs---the DJIA having broken above its all time high (14190),
the S&P not (1576).
Volume
remained high; breadth was mixed. The
VIX was up again and is approaching the upper boundary of its short term
downtrend. However, it closed well
within its intermediate term downtrend.
And:
GLD
finished up again but is still well below the lower boundaries of its short
term downtrend and its intermediate term trading range. It is remains close to the lower boundary of
its long term uptrend. I suspect that
this boundary will be challenged; and if GLD holds, our Portfolios will likely
start re-building a position.
Bottom line: with the S&P settling on the lower
boundary of its short term uptrend, it appears as though we may get the first
real challenge to the last six months upward momentum. Given the length of the trend, I would be
surprised if it didn’t take more than one attempt to bust through this
barrier---assuming that even happens.
Stocks may bounce from current levels without any meaningful challenge.
That said,
Market internals continue to deteriorate, suggesting that at the very least we
could get the same kind of back and forth bull/bear battle at the S&P’s
lower boundary of its short term uptrend that we did when the S&P initially approached to 1576.
If equities
regain upward momentum, our Portfolios will be better Sellers. If this Market is rolling over, our cash
position is going to look awfully good.
Thoughts
on the distribution now taking place in the Market (medium):
Signs
of risk off (short):
Year
to date look at the world markets (short):
Fundamental
Headlines
Yesterday’s
economic data was on the disappointing side: weekly jobless claims rose, the
Philly Fed manufacturing index and leading economic indicators were short of
expectations. With the recent heightened
level of investor schizophrenia, it is not surprising that a bunch of lousy
economic numbers would push stock prices lower on the day. Of course, I think that stocks ought to be
mean reverting even if all the above indicators had come in positive.
That said, I get
investor concern because the overall trend in the economic dataflow has been
much more mixed of late than it was a month ago. That doesn’t mean that I am getting
pessimistic on the economy or seriously contemplating revising our
forecast. It does mean that I can’t
ignore:
(1)
the overall trend in US economic data flow has turned less
positive. Of course, we have seen this
on-again, off-again growth pattern in the US
economy several times in the last four or five years; and in the end, the
economy was strong enough to not sputter and roll over. At the moment, there is no prima facie
evidence that it will be any different this time; although as recoveries go,
the current one is well past middle age, historically speaking. So at some point, the off-again period is
going to remain off.
(2)
the aforementioned slowdown is being accompanied by
disappointing stats out of China ---which
as you know, our forecast has been depending on to offset a weakening Europe . Given that the Chinese lie about everything,
there is no telling when we will really know what is happening in their
economy. Our best source of information
is likely to be the anecdotal evidence we get from US companies doing business
there.
Bottom line: (1)
we don’t need poor economic results for stocks to go down. They are overvalued on our sanguine outlook---which
looks like it is once again going from being below to above consensus
forecasts, (2) it is too soon to know whether [a] the recent weakness in US data
is just a part of another mini cycle within the current recovery or [b] if
China’s growth rate is slowing below our assumptions. However, it is not too soon to worry or
initiate a flashing yellow light.
Overleveraged
stocks put Market at risk (medium):
Zack’s
on earnings expectations (medium/long and today’s must read):
***overnight the G20 bless
Japan’s triple down, all in, crank up the printing presses monetary easing.
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