The Morning Call
The Market
Technical
The
indices (DJIA 15555, S&P 1690) rebounded yesterday. The Dow closed back above the upper boundary
of its short term trading range (14190-15550).
Under our time and distance discipline, that re-starts the clock on the
time element. If it remains above 15550
through the close Monday, the trading range will be invalidated and the trend
re-set to up. The S&P remained within
its short term uptrend (1600-1756) and bounced back above the May 22 high (1687)---which
as I noted yesterday should be acting as support.
Both
of the indices remain within their intermediate term (14438-19438, 1535-2123) and
long term uptrends (4918-17000, 715-1800).
Volume
was flat; breadth improved. The VIX
fell, remaining within its short term trading range and intermediate term
downtrend.
GLD
rose and is developing a very short term uptrend. However, it is firmly within its short term
and intermediate term downtrends.
Bottom
line: the challenge process of the Averages short term trading ranges
continues---yesterday on a more positive note. The Dow re-started its challenge; and the
S&P 1687 seems to have done its job of providing support. Nevertheless, as long as the indices are out
of sync (S&P re-setting to an uptrend, the DJIA not), a change in overall
Market trend has not been validated. At
the moment, all we can do in remain patient and let the Market work things out.
August
historically has been one of the worst months stock performance-wise (short):
Update
on NYSE margin debt (short):
Bullish
sentiment ticks lower (short):
Fundamental
Headlines
Yesterday’s
US economic data was mixed: June durable goods orders surged but ex the very
volatile transportation sector, they were below expectations, weekly jobless
claims rose but were in line and the Kansas City Fed’s manufacturing index was
above estimates.
Internationally,
the dataflow continued to improve: German business confidence improved, Spanish
employment and the UK
second quarter GDP were stronger than
expected. The bad news was that ECB
credit creation fell and private credit creation hit a record low. I noted in yesterday’s Morning Call that it
was something of a surprise to be getting positive numbers out of the EU. The above stats makes the surprise all the
more pleasant. We still need more than
two days of upbeat data before getting jiggy about a potential improvement in Europe . Nonetheless, we have to appreciate good news
when we get it.
Earnings
and interest rates still commanded the bulk of attention yesterday with better
bond prices (lower rates) carrying most of the weight. This was helped along by a new Hilsenrath (aka
Bernanke’s bitch) puff piece ‘speculating’ that the Fed will continue QE at its
July meeting. That in turn accounted for
the improvement in equity prices.
This recent
behavior (stock prices inversely correlated with interest rates) seems to be
suggesting that stock prices are becoming more sensitive to interest rates---irrespective
of how one interprets ‘tapering’, Bernanke’s confusing statements on ‘tapering’, whether or not
‘tapering’ is ‘tightening’, whether or not investors have already discounted
‘tapering’ and whether or not investors’ confidence in the Fed was impacted by
the ‘tapering’ confusion.
In other words,
we may have a very simple equation before us versus the more complex arguments
about the Fed, ‘tapering’ etc that I have been going through: stocks, at the
moment, don’t like higher interest rates, period. If rates go up, no matter what the reason, it
appears stocks are going down and visa versa.
Bottom
line: we have seen a lot of cross
currents in the news this week: poor economic numbers out of the US ,
but improving data from Europe ; better earnings reports
than anticipated but a move up in interest rates. Overall, I consider them a mild plus for the
economy. However, even if they were so
positive to prompt an upgrade to our forecast---and I am by no means suggesting
that they are; but if they were---stocks would still be overvalued (as
calculated by our Model).
On the other
hand, if interest rates are heading up---and again, I am not suggesting that
they are---then if the pin action of late is an indication of overall investor
sentiment, the Market may take a dim view.
In
the end, I am sticking with our discipline, focusing on lightening up on those
stocks that hit their Sell Half
Range
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