The Morning Call
The Market
Technical
The
indices (DJIA 15233, S&P 1650) took another rest yesterday but still closed
within all major uptrends: short term (14410-15131, 1584-1661 [the Dow is above
its upper boundary]), intermediate term (13942-18942, 1479-2067) and long term
(4783-17500, 688-1750).
Volume
rose; breadth declined. The VIX was up a
bit, closing within its short term and intermediate term downtrends. I check our internal indicator: in a 139
stock universe, 68 have been making new highs regularly, 58 have not and 13 are
too close to call. That is not a robust
reading given performance of the Averages. Indeed, it reflects the lack of
breadth.
GLD
fell again and is nearing a challenge of its April low and the lower boundary
of its long term uptrend.
Bottom line: I
was really surprised by the lack of strength in our internal indicator. Needless to say, it reinforces my caution on
the Market. That doesn’t mean that the
Averages still can’t reach the 17500, 1750 level. But if the participation rate either remains
as weak as or gets weaker, then that nimble trader I have referred may need to
be even more nimble than I originally thought.
Meanwhile, (m)y 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
Morgan
Stanley on recent short covering activity (short):
The
elusive corrections (short):
Update
on sentiment (short):
Fundamental
Headlines
Yesterday
was another negative day for US economic data: April housing, weekly jobless
claims and the Philly Fed manufacturing index were all very disappointing. On the other hand, both the headline and core
CPI were slightly better than estimates;
plus April building permits were strong.
So cumulatively
this week, the numbers have not painted a particularly encouraging picture of
our economy; though last week had a more positive tilt to it. I am continuing to assume that the current
herky jerky, good news/bad news data flow is similar to previous episodes in
this recovery---so a change in forecast is not warranted. Nonetheless, the amber light is
flashing.
The latest from
Charles Biderman (6 minute video):
Meanwhile,
overseas, first quarter Japanese GDP came in
stronger than expected. Could it be that
Japanese economic growth will end up replacing Chinese activity as an offset to
the European malaise? Too soon to tell.
But importantly,
the volatility in the stats being reported in Europe , China ,
the US and now
Japan, have created a number of economic question marks that when clarified
could lead to alterations in our outlook.
Clearly, we need to be watching closely.
Bottom
line: yesterday was another rough day
for US economic data. I hesitate to
attribute the weak Market to these stats because, usually, investor response to
poor numbers has been to assume that the Fed will just stay easy, longer. So it is probably safer to assume that
random noise was the culprit.
The other
possibility is that the discussion about ‘Fed tapering’ is slowly gaining some
momentum. Yesterday, an FOMC member gave
a very confusing speech that covered potential Fed tightening. Forgetting whether or not it was confusing,
it kept the discussion going; and at some point, the perception that ‘Fed
tapering’ is close by may gain critical mass and start impacting stock prices.
Forced
buyers of risk (short):
How
does this make sense (short):
The
latest from Bill Gross (medium):
The
latest from Lance Roberts (medium):
I
add this for the bulls (medium):
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