The Morning Call
The Market
Technical
I
know that many are stunned to know that stocks can go down in price, but the
indices (DJIA 15451, S&P 1676) did so yesterday. They remain within their short term trading
ranges (14190-15550, 1576-1687) and the intermediate term (14362-19362,
1524-2112) and long term uptrends (4918-17000, 715-1800).
Given
the proximity of close of the Averages on Monday to those short term trading
range upper boundaries/May highs, it is tempting to judge yesterday’s pin
action as the end of a failed attempt to challenge those levels. However, the paucity of the indices decline
yesterday on weak volume is probably not a good sign of a failed challenge---it
just got a little less overbought. Even if I chose to interpret it as a valid
rejection, normally, stocks will assault major resistance a couple of times
before the final determination of a break is known.
Volume
was up slightly; breadth was mixed. The
VIX was up 4%+, putting it back above the lower boundary of a very short term
uptrend that it negated the day before.
I am going to stick with my original call for at least another day or
so. However, if the VIX continues to
advance with as much momentum as it displayed yesterday, I will re-instate that
very short term uptrend---which would be negative for stocks.
GLD
rose and now is trading within both its short term and intermediate term
downtrends. However, it remains below
the upper boundary of a very short term downtrend. Until it breaks this downtrend, I will not
even begin to consider thinking about re-establishing a position in GLD.
Bottom line: the
indices remain in that price zone just shy of a major resistance level
(15550/1687). One good day could put
them above those levels; but a major down day would strengthen the resistance
power of 15550/1687, leave the short term trading range in tact and could start
to raise questions about a double or triple top. But until one or the other occurs, there is
nothing to do but watch the process.
Small
and mid caps starting to outperform (short):
Fundamental
Headlines
The
US data flow
yesterday provide an assortment of results: CPI
was a bit hotter than expected; weekly retail sales were mixed; industrial
production was better than anticipated as was the NAHB homebuilders index. These numbers are right in line with an
economy buffeted by headwinds but managing to move forward. So there is nothing new here that would
impact either our Economic or Valuation Models.
Of
course, none of this matters as investors’ attention remained fixed on
Bernanke’s testimony today and tomorrow before congress. I noted earlier that given the Market
schizophrenia that he induced in his May/July comments, I can’t imagine
Bernanke will say anything that varies from his last statement. But you never know what will come out in the
Q&A sessions especially in the house.
***over
night the UK
put QE on hold.
Bottom line: stocks are deep in overvalued territory, at
least as measure by our Valuation Model.
At the moment, investors are looking at a Market at a critical technical
juncture plus earnings season is just getting rolling and Bernanke, who has
been the premier Market mover over the last two years, about to give two days
of congressional testimony.
In my opinion, that is not a scenario
to be making Market bets irrespective how bullish or bearish one might be. That said, if our Valuation Model is correct,
a move above 15550/1687 would encourage a continuation of Selling as our stocks
move into their Sell Half
Range
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