The Morning Call
The Market
Technical
The
bulls still rule. Yesterday, the indices
(14831, S&P 1597) gained back almost everything it lost on Wednesday,
closing within all major uptrends: short term (14243-14924, 1564-1641),
intermediate term (13850-18850, 1469-2059) and long term (4783-17500,
688-1750).
Volume
was anemic though breadth recovered. The
VIX continues to meander within its short and intermediate term downtrends.
GLD
advanced, remaining within its intermediate term downtrend and its long term
uptrend.
Bottom line: with
such a powerful bid under the Market, any discussion about counter indicators
always appears like sour grapes. The
trend is up and will be until it is not.
Nevertheless, tops are generally processes rather than events; so there
are almost always warning signs. The key
is being able to tell at what point the camel’s back has been broken so to
speak. I have never figured that out, so
I rely on our Valuation Model in cooperation with our Price Disciplines.
Unfortunately,
that always makes me wrong for a period of time around Market turns. If you
are cursed with the same timing handicap as I am, I think that you
should have a decent cash position. If
you are one of the skilled traders, I don’t need to tell you to have your
finger on the trigger.
If any of our
stocks trade into their Sell Half
Ranges
Update
on sentiment (short):
Fundamental
Headlines
More
mixed data yesterday: weekly jobless claims and the April trade deficit were better expected while first quarter
productivity and unit labor costs fell short of estimates. The highly watched positive jobless claims
number was a pleasant surprise; so that made investors happy.
***over
night, Chinese services PMI came in below
expectations
But what seemed
to really goose the Market was the ECB’s rate reduction coupled with Draghi’s
statement that monetary policy will remain accommodative. What surprised me was that the Market would
react so positively to an already well telegraphed
event. One could argue I supposed that it wasn’t
discounted sufficiently; but I find that hard to believe. In the end I think that it says much about
the underlying unwillingness of investors to fight the Fed---and at this point
I disconnect. Not because I don’t
believe or understand it, but because (1) I don’t have a scenario where this
blind faith in the power of liquidity gets resolved in a way that doesn’t come
back and bite those investors on the ass and (2) I am not smart enough to know
how to play the interim period between ‘blind faith’ and a ‘bite on the ass’.
I
could go into another rant (1) about how disconnected from reality I believe
that stock prices have become because of this cliché, (2) about how if the
economy weakens, earnings are going to disappoint and/or the student loan, auto
loan and new mortgage loan bubbles are at risk of bursting and/or the current
friendly game of competitive devaluation could turn nasty (3) about how if the
economy doesn’t weaken, the day of reckoning for the Fed/central banks massive
liquidity injection draws ever closer, (4) and about how, in any case, the
risks are high that this money printing episode will not end well. But you have already heard it all.
Bottom
line: the upbeat jobs data was welcome
after some rough numbers earlier in the week.
Plus Draghi’s statement regarding the ECB willingness to continue to
exercise monetary accommodation helps our EU ‘muddle through’ scenario. While both are a mild ointment on my concerns
expressed yesterday regarding the continuing deterioration in economic data
globally, the amber light is still flashing and the likelihood of a more rapid
transition into the red zone remains.
If our forecast
holds, we must face the risks related to the unwinding of the current egregious
and accelerating expansion of globally liquidity sooner rather than later. If a slowdown occurs, then while we may not
have to worry about a reversal of Fed policy anytime soon, we will then have to
worry about declining corporate profitability, the soundness of bank balance
sheets (cough, derivatives, cough), the bursting of several credit bubbles and
an intensification of the battle of competitive devaluations.
And
(medium)::
And (medium):
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