The Morning Call
The Market
Technical
Another
wonderful day in stock land with the indices (DJIA 15056, S&P 1625) closing
within all major uptrends (the Dow is over the upper boundary of its short term
uptrend): short term (14317-15017, 1570-1644), intermediate term (13868-18868,
1472-2061) and long term (4783-17500, 688-1750).
Volume
was flat and remains anemic; breadth improved.
The VIX continues its aimless wandering within its short and
intermediate term downtrends.
GLD
fell, finishing near the lower boundary of its intermediate term
downtrend. It remains above the lower
boundary of its long term uptrend.
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
What
is it with Tuesday’s (short):
Fundamental
Headlines
Only
one set of numbers in the US
yesterday: weekly retail sales which were mixed at best. On the other hand, there was another good
stat out of Europe ---German factory were better than
anticipated; and ...drum roll...... the Bank of Australia lowered rates
How’s
that for an optimist’s trifecta:
(1) poor US
data, encouraging continued Fed easing.
On the other hand, even though the weekly retail sales number is a
secondary indicator, it still fits into the recent trend toward weaker
data---keeping the amber light flashing.
(2) improving EU
economic activity and, hence, the ‘muddle through’ scenario. The flow of economic data out of Europe
continues to improve. It is still far
too early to assume that Europe is out of the woods; but
the stats just keep pointing in that direction.
This is the potential bright spot in the economic scenario.
(3) yet another
central bank joins the easy money race. While
investors, in general, are positively giddy about more central bank easing, it
simply exacerbates a risk that is slowly but surely replacing Europe ’s
fiscal/banking problems as my number one concern---how can this global
explosion in liquidity end well?
Small wonder
investors got jiggy with it.
Bottom
line: the incoming data continues at
odds with some of the assumptions in our Model.
US economic numbers are a bit weaker than I expected while European
stats are somewhat stronger. I am not
convinced that either will ultimately turn into a trend reversal; but this data
has to be respected and watched.
That said,
whatever happens is going to have to be shockingly positive to get valuations
to current levels. Even if US
economic growth reasserts itself and the EU heals faster than I anticipate, I
still can’t get stock prices near their present altitude---so I am still be
stuck with my present problem of being reasonably positive on the economic outlook
but unpersuaded of current valuations.
More
thoughts for the bulls (medium):
The
latest from Jeremy Grantham (medium):
Complacency
and the plunge in Bloomberg’s macro trend (short):
The
latest from Lacy Hunt (medium and a must read):
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