The Morning Call
The Market
Technical
The
indices (DJIA 14966, S&P 1617)) had a quietly mixed day (Dow down, S&P
up), finishing within all major uptrends: short term (14279-14976, 1566-1642),
intermediate term (13858-18858, 1472-2061) and long term (4783-17500,
688-1750).
Volume
was flat (and low); breadth deteriorated.
The VIX fell, closing within its short and intermediate term downtrends.
GLD
was up fractionally, remaining above the lower boundaries of its intermediate
term downtrend and its long term uptrend.
I continue to await a test of the prior low or the lower boundary of the
long term uptrend before considering rebuilding this position.
Bottom line: the
trend remains up. While there are
developing divergences and structural weaknesses, they clearly aren’t
sufficient to overcome a solid bid side to the Market. As long as the money keeps flowing in and
investors remain immune to the fear of the downside, nothing is likely to
change.
My strategy
continues to be to take advantage of what I consider unwarranted optimism by
lightening up on positions when the stock price trades into its Sell
Half Range
Post
election year mean reversion (short):
Fundamental
Headlines
No
US economic
news yesterday. However, overseas the
Chinese service PMI came in below
expectations while several EU sovereigns’ service PMI
came in better than estimates. Both
reflect trends from recent weeks. As you
know, our economic forecast has the positive impact of Chinese growth
offsetting a decline in EU activity.
What seems to be occurring is that Europe may be
bottoming---and hence, could come in over our forecast; while Chinese economic
growth may come in less than I expected.
At
the moment, I am not sure how all of this will impact our US
economic outlook. China
is definitely coming in shy of my estimates.
On the other hand, the improvement in the EU is still too young to know
if it will last and what the magnitude of any recovery will be, if indeed there
is one.
I
point this all out less in a quantitative sense because that is an unknown
right now, but more in a qualitative sense---circumstances are varying from the
assumptions in our Models, those assumptions may need to be altered and I am
not sure if that will be for better or worse---but conditions are changing and
you need to be aware of that.
Bottom
line: the incoming data is not matching
up with some of the assumptions in our Model.
The clearest indication of a deviation from our outlook are the stats out
of China , i.e.
they are weaker than I expected. The
problem always with Chinese numbers is their veracity; and unfortunately, they
usually err on the positive side.
US economic
numbers have been on the lite side the last couple of weeks. I have noted several times that we have seen
this before; so I am not overly exercised.
***over night,
German factory orders were well ahead of expectations.
So there is much
to keep our eyes on but not enough to alter our forecast or investment
strategy, yet---as unsatisfying as that conclusion may be.
The
latest from David Rosenberg (medium):
Warren
Buffett on bonds (medium):
For
the bulls amongst you (short):
Corporate
profits as a percent of GDP (short):
The
federal deficit and Fed bond purchases (medium):
The
S&P with and without QE (short):
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