The Morning Call
The Market
Technical
The
indices (DJIA 14910, S&P 1603) had another good day, closing within their
intermediate term (14244-19244, 1508-2096) and long term uptrends (4783-17500,
688-1750).. Nevertheless, they remain
below the downtrend off the May 22 high (current intersects: 15294, 1642) as
well as their 50 day moving averages (15019, 1618) and are in search of lower boundaries for new short term trading
ranges (14190 [?]-15550, 1576 [?]-1687).
Volume
was flat; breadth was mixed. The VIX
fell, finishing within its intermediate term downtrend. It has yet to mark an upper boundary of a new
short term trading range.
GLD
continues to get crushed, destroying boundaries of all major trends. Nothing to do here.
Bottom line: the
last two day rebound notwithstanding, nothing in the charts of either the
Averages or the stocks in our Universe suggest that the short term correction
is over; although clearly on an intermediate and long term basis the trend is
up. The answer that I am waiting for is
whether the Averages set up a short term trading range or challenge the
intermediate term uptrend. There is
little to do at this point until we get that answer. That said, if any of our Portfolio holdings
trade into their Sell Half
Range
An
update on sentiment (medium):
Fundamental
Headlines
If
Tuesday was a positive news day, Wednesday was negative. Two US
economic releases were not great---weekly mortgage applications fell although
the more important purchase applications were up and the revised first GDP
growth rate was reported up considerably less than expected. However, it was not that out of line with our
forecast; so I am not concerned.
Overseas,
we got the first inkling of a fiscal problem in Italy ,
as a newspaper reported that the government was going to take a loss of up to
E6 billion on a derivative investment.
If it occurs, that is not going to help our ‘muddle through’ scenario.
More
on problems in Italy
(medium):
The
wear and tear of governing in southern Europe (medium):
Bottom line:
yesterday was a counterweight to Tuesday’s pin action. On Tuesday, we got great economic news and
stocks limped up; yesterday, the GDP number
was well below expectations and prices were strong.
Some pundits
have suggested that a portion of yesterday’s strength could be attributed to end of quarter window dressing
by the funds. On the other hand, I can’t
ignore that equity prices rising strongly on bad economic news (the GDP
report), i.e. bad news is good news because it means more QE, calls into question the validity of my thesis
that investors know that the Fed knows that it is playing a risky game (creating
asset bubbles) and the price of admission is significantly higher than thought
last Tuesday.
Of
course, one day’s price action doesn’t prove or disprove anything; but
yesterday’s Market performance certainly illustrates why one must always be
open to being wrong. That said, the
economic data continue to support our Valuation Model’s Year Fair Value of
S&P 1440; and that suggests there is more downside risk, whatever the
reason.
The
uncertainties of the Fed’s bubble (short):
***over
night, France’s budget deficit grows well above mandated level and its banks
now head the list of EU’s most highly levered (medium):
The EU has made
the Cyprus template (depositors share in bank losses) its template (medium).
And
the Peoples’ Bank of China said it would provide liquidity but maintain its
tightening bias (medium):
Investing for Survival
Using
money to buy happiness (medium):
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