The Morning Call
The Market
Technical
The
indices (DJIA 15238, S&P 1642) took the day off yesterday, with little
price movement on almost nonexistent volume.
They remained within all major uptrends: short term (14717-15435,
1619-1698), intermediate term (14108-19108, 1498-2086) and their long term
uptrends (4783-17500, 688-1750).
As
I noted, volume was anemic; breadth deteriorated. The VIX was up slightly, remaining within its
short and intermediate term downtrends.
GLD
rose. It finished above the double
bottom, the lower boundary of its long term uptrend and the upper boundary of a
very short term downtrend. That said,
Friday’s pin action undid almost three weeks of positive technical performance
and yesterday did nothing to change that.
Our Portfolios remain on the sidelines.
Bottom line:
while there was no follow through on Friday’s S&P challenge of the upper
boundary of a very short term downtrend, there was also no retreat back toward
that boundary. A close above it today would
negate that downtrend. If that happens
(and it is Tuesday), then I have to assume that the momentum is to the upside
and the next serious technical challenge will occur in the S&P 1675-1687
(the upper zone of the May 22 ‘outside down day’).
Any move to the
upside that pushes our stocks into their Sell
Half Range
Fundamental
Headlines
No
economic news out of the US
yesterday. However, there was one
headline that got investor attention, to wit, the S&P upped its ‘outlook’
for US treasuries. The main reason was
the impact of sequestration and the 1/1/13
tax increase on the deficit.. And I get
that. But all the conditions that led to
the original downgrade (rising government spending, open ended entitlements,
political dysfunction) are still there.
To be clear, no
one is happier about the current trend in our budget deficit; but a look at the
CBO projections of future budget deficits is nothing about which to get
jiggy. If our ruling class doesn’t take
action on entitlement spending and tax reform, the government will soon be back
in the same condition it was when the S&P rating was lowered. And not to bring up a potentially sensitive
point, but with the White House deep in its command bunker as the scandals
multiply, what are the chances of any meaningful progress in the next three
years? At one point, I thought that
these scandals might induce a little humility in Obama. But He is taking page from the Nixon strategy and is belligerent
as ever.
Overseas, there
were some mentionable developments:
(1)
the extreme volatility in the Nikkei continues. Granted yesterday’s move was to the upside,
but the volatility itself is a sign of uncertainty. Given the risks associated with the yen ‘carry
trade’ [borrowing yen at very low interest rates and buying higher yielding
securities], the increased investor unease with QEInfinity and the possibility
of ‘tapering’, I think caution is important irrespective of which way the
Nikkei moves and by how much,
***over night
the Bank of Japan failed to expand the list of securities it would buy in its
current QE. Markets were pissed and the
Nikkei is once again off triple digits.
The painful side of the Japanese growth strategy (short):
(2)
poor Chinese trade data. Remember, an improving Chinese economy was,
at one point, a positive factor in our economic outlook. Then it went to a neutral. It is still there; but the more negative the data
gets, the greater the probability that it shifts from neutral to negative,
(3)
there was good news and bad news out of the EU. Stats out of the UK ,
France and Spain
were better than expected---and that is a positive. Indeed, I have suggested that the Chinese
weakness might be offset by a better economic performance in Europe . I continue to hope that is the case. That said, Greece
is back at the brink and it appears that the ECB, the IMF and Germany
have a much weaker stomach for a second
bail out.
Meanwhile, the
German court will soon rule on the constitutionality of two of the big EU
economic stabilization measures. Don’t
even think about what will happen if they rule against them (medium):
Bottom line: stocks (as defined by the S&P) are
overvalued (as defined by our Valuation Model).
As you know, I am not pessimistic about the economy; nor am I looking
for a Market crash. But, at least as
measured by our Model, a sluggishly growing economy, an increasingly
dysfunctional ruling class plagued with numerous scandals and a Fed pushing
monetary policy into new unknown territory don’t support current
valuations. Period.
The
latest from John Hussman (medium):
Why
Fed policy is not working and is not going to work (medium and today’s must
read):
An
early look at second quarter earnings preannouncements (short):
For
the optimists (medium):
And
(medium):
No comments:
Post a Comment