The Morning Call
The Market
Technical
The
Averages (DJIA 15254, S&P 1640) rebounded yesterday, closing within all
major uptrends: short term (14612-15320, 1604-1681), intermediate term
(14018-19018, 1489-2077) and long term (4783-17500, 688-1750).
Volume
declined was but still fairly high; breadth improved. The VIX was off fractionally, finishing
within both its short and intermediate term downtrends. However, it remains near the upper boundary
of its short term downtrend.
GLD
was strong and once again closed above the upper boundary of its shortest term
downtrend. That restarts the time and
distance clock. If it remains above the
aforementioned downtrend, our Portfolios will begin re-building this position.
Bottom line: whether
it was the ‘buy the dippers’, the ’bad news is good news’ crowd or ‘if it is
Tuesday, the Market must be up’ (buy the close on Monday) crew, clearly lots of
bulls in one form or the other remain.
The question now is, how much follow through can they generate. The key level to watch is the 1675 on the
S&P. If it can be surmounted, then
the downtrend off the May 22 ‘outside down day’ would be negated.
Fundamental
Headlines
Yesterday’s
US economic news was a good news, bad news story: the May ISM manufacturing
index was very disappointing as was April construction spending; May PMI
manufacturing index was slightly ahead of expectation and May vehicle sales
were above estimates. By far the most
important number was the ISM manufacturing index; so I would hang a minus on
the day’s US economic data.
Overseas
the Nikkei was down another 500 points, China ’s
latest PMI was mixed and while EU PMI ’s
were better than estimated, they were still negative.
Merkel
says nein to fiscal union (medium):
The
problem with Japan ’s
Plan B (medium):
Finally,
congress has returned from its Memorial Day holiday. That means that we are going to get a snoot
full of hearings on Benghazi, the IRS , the
AP, the Sebelius fund raising and gosh only knows what other rotten corpses are
yet to be revealed. That probably means
little in terms of productive legislation, including action on the debt ceiling
and a ‘grand bargain’ on entitlement and tax reform.
All
in all, not a good day in terms of news flow.
But as I noted above, the ‘bad news is good news’ syndrome remains
operative.
Bottom line:
stocks (as measure by the S&P) are overvalued (as measure by our Valuation
Model). But that means little as long as
investors believe that the Fed will continue pumping money into the system and
continue to ‘buy the dip’ and believe that ‘bad news is good news’.
To that subject
John Hussman’s piece this week deals with the specifics of Fed ease and Market
performance which in sum says that, historically, stocks can suffer severe
declines in periods of easy money. Today’s
must read:
And
Bill Gross’ latest piece, equally derisive of Fed policy (medium and also a
must read):
The
problem with the Fed’s strategy (medium):
A
look at what is happening to the US
financial systems balance sheet (medium):
And
in the mortgage market (medium):
It
is time to ‘taper’ (medium):
Counterpoint---why
it is not happening anytime soon (short):
Bond
yields in historical perspective (short):
Update
on Chris Short’s valuation models:
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