Wednesday, June 12, 2013

The Morning Call--If bad news is good news, then we are going higher


The Morning Call

6/12/13

The Market
           
    Technical

            The indices (DJIA 15122, S&P 1626) had another tough day, as the recent increase in volatility manifested itself again.  However, they closed within their major uptrends:  short term (14741-15452, 1620-1699), intermediate term (14134-19134, 1498-2086) and their long term uptrends (4783-17500, 688-1750). 

As you can see, the S&P finished the day fairly close to the lower boundary of its short term uptrend; it also closed right on the upper boundary of its very short term downtrend.  In this case under our time and distance discipline, that would not qualify as having negated the break above that boundary.  However, I am extending the time element one more day.  In sum, if the S&P closes above this boundary today, then the short term downtrend will be deemed broken; if not, then the downtrend will still be in play.

Volume was again quite low; breadth was dreadful.  The VIX jumped 10% but remained within its short and intermediate term downtrends.  However, it is once again within striking distance of the upper boundary of the short term downtrend---a break of which would be negative for stocks.

GLD has off, but still finished above its double bottom, the lower boundary of its long term uptrend and the upper boundary of the very short term downtrend.  Nevertheless, the GLD chart is broken.

Bottom line: volatility is keeping the technical picture clouded.  If the S&P is down today,  then its very short term downtrend will remain in tact plus the lower boundary of its short term uptrend will again be threatened.  An up day will negate the very short term downtrend and pave the way for the potential challenge of the S&P 1675-1687 level (the upper zone of the May 22 ‘outside down day’). 

Any move to the upside that pushes our stocks into their Sell Half Range offers the opportunity to do just that.

    Fundamental
    
     Headlines

            Yesterday’s economic data was passable: weekly retail sales were mixed, April wholesale inventories were up in line but wholesale sales were much stronger.  Nothing to be negative about here.

            However, bad news abounded from other sectors:

(1)   in the US, a research report predicted that Citi would take a loss of as much as $7 billion in its currency trading operation.  To be clear, this is a forecast not a fact.  However, it keeps alive the nagging doubts about the viability of our banking system and the manageability of the large banks. (medium)

                 Over night, we learn this---more price rigging (medium):

(2)   continuing worrying over how the German constitutional court will rule on ECB bank bailout measures (see yesterday’s Morning Call),

(3)   more carnage in the Nikkei following a BOJ decision to not expand its QE.  This appears to be a continuation of the unwind of the yen carry trade which has negative implications for every asset  that was bought with the funds from the cheap yen loans.  The worry among investors is that the aggressive selling of the Nikkei finds its way to our shores,

(4)   political turmoil in Turkey.  By itself, this is the least worrisome.  However, when investors get nervous, rioting and mayhem don’t help their disposition.

Bottom line:  rumblings worldwide are suggesting that all is not well in stock land: economic/financial conditions are deteriorating in Europe---again, the Chinese economy is weakening more than many expected, the Japanese monetary policy is Bernanke on steroids and it is developing some cracks, our own government is so plagued by scandal that no serious public discussions are being had with respect to critical issues (did you know that the senate voted on an immigration bill, yesterday---a half assed one at that) in particular a doomed fiscal policy and do I need to add the near universal confusion over ‘tapering’.  

Of course, investors have thrived of late on bad news so equity prices could continue to advance.  Gosh only knows, if they love bad news, they now have a snoot full.  I remain a skeptic.

            Lance Roberts on the EU and impending disaster (medium):




Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at

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