The Morning Call
The Market
Technical
The
indices (DJIA 15454, S&P 1682) inched higher 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).
Clearly,
the Averages are near challenging the upper boundaries of the short term
trading ranges/May highs. I have
suggested that a penetration of these levels would likely lead to another leg
up; an unsuccessful test would create a double (triple) top. However, the longer stocks fiddle around,
consolidating an overbought position right under the 15550/1687 levels, the
more likely it is that the next big move will be to the upside.
On
the other hand, a check with our internal indicator provides the following
reading: in a Universe of 141 stocks, 84 are still some distance from making
new highs, 41 have made new highs and 16 are on the cusp. That does not suggest that a break to the
upside is imminent. However, the longer
stocks continue to trade at current levels, the more likely it becomes that
this indicator shifts to a more positive position.
Volume
fell; breadth was mildly to the plus side.
The VIX confirmed its Friday break of a very short term uptrend, re-setting
the short term trend to a trading range.
It remains within its intermediate term downtrend.
GLD
was up fractionally; so there was no improvement to its technically broken
chart.
Bottom line: if
equities are successful at overcoming the 15550/1687 level, resistance will be
marked by the upper boundaries of their major trends (short term---1750,
intermediate term---2109, long term ---1800).
Assuming the
1750/1800 (short and long term upper boundaries) area represents the zone of
maximum upside, that is about 3-6% versus 6% downside if stocks return to the
short term lower boundary, 9% if they slide to the intermediate term lower
boundary, 18% if they return to Fair Value and 57% if they make it all the way
to the long term lower boundary
If the
15550/1687 levels hold, the risk exists that a double, even a triple, top will
have been put in.
There is nothing
to do but watch the process.
Second
half stats (short):
Why
Bernanke reversed himself (short and a must read):
Fundamental
Headlines
We
got mixed economic news both here and abroad yesterday.
(1)
in the US ,
June retail sales (both the headline and ex autos numbers) were disappointing
while the New York Fed manufacturing index was above expectations. These figures do little to alter our outlook
for below average economic growth.
(2)
internationally, China reported a lower second quarter GDP
growth rate [7.5%], though it was expected; while industrial production was
below estimates and retail sales were above forecasts. Chinese economic activity has had and will
have some impact on our own growth prospects.
However, as I have noted many times, US businesses have done a marvelous
job of adapting to adverse conditions---in this case, insulating the US
economy from the recent slowdown in China . So at the moment, I don’t see further sluggish
[for China ] growth
as a threat to our recovery---although a drop to a low to mid single digit rate
could be a bit more worrisome.
Bernanke
maintains the spot light with his Humphrey Hawkins testimony before congress
due this week. After the brouhaha of the
last month, I can’t imagine him saying anything controversial or at odds with
his last Casper Milquetoast presentation.
But until it is over, investors may want to stay cautious.
Bottom line: stocks are near their highs. The next event critical for Market direction
is technical as opposed to fundamental, to wit, will stocks move to new highs
or remain in a short term trading range?
I say that because, at least as calculated by our Valuation Model,
equities are sufficiently overvalued that fundamentally nothing short of a
repeal of Obamacare, entitlement/tax reform and a move by the ECB to properly
deal with southern Europe’s sovereign/bank debt problems could move Fair Values
to current price levels.
However, even if I ignore Fair Value
and just try to price stocks off the technicals, I really don’t see much
attractive about the risk/reward equation.
See analysis above in Technical section.
So if any of our stocks trade into
their Sell Half
Ranges
The
latest from John Hussman (medium):
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