The Market
Technical
The
indices (DJIA 15318, S&P 1651) continued their rally yesterday, finishing
within all major uptrends: short term (14824-15566, 1632-1711), intermediate
uptrends (14175-19175, 1503-2091) and their long term uptrends (4783-17500,
688-1750).
The
most important technical aspect of this pin action is that the S&P has made
a higher high than the 6/10 high; coupled with the recent higher low (see
yesterday’s Morning Call), that suggests a return of some upside momentum. The
targets now are the upper boundary of the short term uptrend and the 1675-1687
level---which is the upper zone of the May 22 ‘outside down day’.
Volume
declined; breadth was mixed. The VIX
fell but remains within striking distance of the upper boundary of its short
term downtrend. It is also well above
the lower boundary of a very short term uptrend.
GLD
(132.0) fell and is nearing the recent double bottom (130.63) and the lower
boundary of its long term uptrend (130.86).
A break of either would be a disappointment.
Bottom line: the
volatility continues; and yesterday’s S&P close at a new short term high,
points to a return of upside momentum.
Calling Market direction is a high risk proposition in a highly volatile
Market; but the odds have increased of an assault on the e upper boundary of
the short term uptrend and/or 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
Yesterday’s
US economic data was mixed: May CPI was a
bit lower than anticipated, May housing starts were up but less than expected
and weekly retail sales were positive.
None of these would account for the Market surge.
But
the thought that today’s Fed message from its FOMC meeting will be benign got
investor juices surging---this in spite of Obama’s statement in an interview
that Bernanke would be leaving in January.
That clearly
begs the question, what does this mean for monetary policy. Judging by the yawn from investors, I can
only assume that it means that they believe that Janet Yellen will succeed him;
she being as close to Bernanke in monetary philosophy as anyone on the
planet. In other words, no change in
policy.
That said, as I
noted yesterday, I believe that the tapering genie is out of the bottle and
that no matter who says what, when, investors are not likely to stop worrying
about the transition from easy to tight money.
And that will likely impact the strength of the upside momentum in stock
prices.
As a final note,
while I doubt that Yellen will handle the Fed policy transition any different
than Bernanke, I believe that it is chickens**t with a capital C for Bernanke
to bail in the midst of the greatest monetary policy experiment in history (for
which he is responsible), thereby avoiding having to deal with any turmoil
related to the unwinding of that experiment.
What
to watch for at today’s meeting (medium):
Déjà
vu (short):
Is
this credit cycle over? (medium):
For
China as well?
(medium):
***over night rates are
soaring
Goldman slams Abenomics
(long):
Bottom line: today’s pin action will likely be all about
Fed policy. As I noted yesterday, given
the Fed’s current stated guidelines on unemployment and inflation, I can’t
imagine them starting any tapering process any time soon. So I would expect the statement coming out of
the meeting to be dovish.
That said,
investors all over the world are starting to worry about the massive infusion
of central bank liquidity and it is getting reflected in lower bond and stock
prices. Clearly, the US
has dodged that bullet to date apparently because its status as ‘the cleanest dirty shirt in the laundry
basket’. I have no idea how long investors
will continue to give US Markets a pass.
But I want to be conservatively invested when it happens because (1)
current equity valuations are so stretched and (2) the US
securities markets are a very crowded trade and I am not smart enough to be the
first guy out the door.
Pimco on Fed policy
(medium):
The latest from Kyle Bass
(medium and today’s must read):
S&P forward earnings
(short):
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