The Morning Call
The Market
Technical
The
indices (DJIA 14960, S&P 1608) had another rough day. They closed within their intermediate term
uptrends (14081-19081, 1494-2082) and their long term uptrends (4783-17500, 688-1750).
However, there
is a problem in the short term trends.
The S&P closed below the lower boundary of its short term uptrend
(1612-1691). That starts the clock on
our time and distance discipline. If it
remains below this boundary on the close Friday, the break of its short term
uptrend will be confirmed.
On the other
hand, the Dow finished well within its comparable uptrend (14634-15359). So the Averages are now out of sync. In our discipline, both of the indices must
break a boundary to confirm an overall change in trend. So while the S&P break gets my attention,
there are several more steps and a time element that must be satisfied before a
change in direction is confirmed.
Volume rose; and
as might be expected breadth was terrible.
The VIX spiked 7%, closing right on the upper boundary of its short term
downtrend. A break of this trend would
support the move by the S&P to the downside.
http://www.bespokeinvest.com/thinkbig/2013/6/5/10-day-ad-line-now-in-extreme-oversold-territory.html
GLD rose
fractionally. That kept it above the
upper boundary of its shortest term downtrend, but just barely so---which
leaves me cautious. A move up by GLD
would prompt our Portfolios to begin re-building this position.
Bottom line: a
second technical barrier was breached yesterday, though under our trading
discipline, more time or distance is needed to confirm the break. Even if the Averages hold, I don’t view that
as a reason to ‘buy the dip’. To be
sure, it may work once again; but it will occur without our Portfolios.
Right now, in
addition to the lower boundaries of the short term uptrends, I am watching the
downtrend off the May 22 ‘outside down day’ (circa S&P 1640) as well as the
intraday high of the previous day (1675).
I am not looking for stocks to Buy.
Small
investors are starting to up their equity exposure (kiss of death):
The
other reality (short):
Fundamental
Headlines
Wednesday
was a big day for US economic reports: weekly mortgage and purchase
applications were lousy, the May ADP private
payroll increase was weaker than anticipated, first quarter productivity rose
less than estimates, as did April factory orders, as did the May ISM
nonmanufacturing index. Plus the latest
Fed Beige Book report was just a little more restrained than its
predecessor.
Clearly, not a
great data day; neither was it good in stock land---which begs the question,
are we also seeing the demise of the ‘bad news is good news’ thesis? Like all of what have been the prevailing Market
psychological underpinnings (‘it’s Tuesday, so it must be up’, ‘buy the dips’),
it is probably too soon to write an obituary for ‘bad news is good news’. There has simply been too much strength
supporting equity prices for too long to assume that suddenly it is all over
but the shouting. Nonetheless, all these
positive underpinnings are being challenged and, hence, the amber light on the
Market is flashing rapidly.
The other factor
putting pressure on stock prices was another bashing of the Nikkei. I noted in yesterday’s Morning Call, that in
a speech the Japanese PM Abe vowed to pursue economic growth polices, that the
Markets awarded him with a giant raspberry and promptly sold off 700
points. This pin action suggests that
the yen carry trade (borrow cheap Japanese money and buy higher yielding
Japanese, US, global stocks and bonds) is unwinding (selling Japanese, US and
global stocks and bonds and repaying cheap Japanese loans) at a lightening
pace.
Bottom line:
yesterday’s news/pin action raises several questions.
(1)
was the economic news bad enough to prompt a revision
in our economic forecast? Answer: no,
but it doesn’t help, Remember the amber
light is flashing on our economic outlook.
(2)
how much further [distance and time] could an unwinding
of the yen carry trade go? Answer: no
clue [is that an answer?]. But the real
risk here is that it prompts the bond vigilantes in the US
to sell bonds [driving up interest rates] causing a severe tightening of sphincter
muscles of all those lemmings chasing stocks up because of yield.
I am happy with
our Portfolios’ cash positions; and I am still more focused on the Sell side
than the Buy side.
Subscriber Alert
The
price of Western Gas Ptrs (WES -$58) has
traded below the upper boundary of its Buy
Value Range WES , so it
will take no action.
No comments:
Post a Comment