The Morning Call
The Market
Technical
The
indices (DJIA 15291, S&P 1652) marched in place yesterday (Dow down
slightly, S&P barely up). They
remain within their short term trading ranges (14190-15550, 1576-1687) and
their intermediate term (14311-19311, 1520-2108) and long term uptrends
(4783-17500, 688-1750).
Volume
was flat; breadth down. The VIX inched
down again, finishing above the very short term uptrend and within its
intermediate term downtrend.
GLD
was up again but remains outside the boundaries of all major trends.
Bottom
line: the Averages hit weak resistance
levels (15343, 1653) yesterday and backed off a bit. Given the recent Market strength, I can’t
imagine how this resistance will be anything but temporary; but for the moment,
it remains an obstacle. The bigger issue
is how stocks behave when they reach the May 22 highs (15550, 1687). Given the over night futures trading, we will
likely know soon enough. In the
meantime, any stock trading into its Sell
Half Range
The
monthly performance of the Dow over varying time frames (short):
Fundamental
Headlines
Two
US economic
releases yesterday: weekly mortgage and purchase applications, which were
disappointing; and May wholesale inventories fell unexpectedly though sales
were strong. Not great news but neither
is of overwhelming importance. There was
also poor news overseas with the Chinese trade data coming in quite negative
and S&P lowering Italy ’s
credit rating. Cumulatively, that got
the Market off to a weak start.
Mid
afternoon the minutes from that latest FOMC meeting were released. Investors initially took heart from their
dovish tone (see below), the Market popped, then sold off as they decided that
not much had changed. The Market closed flat.
Then the Bern-ank in a Q&A session after speech seemed to walk back
his May/June statements on ‘tapering’ and in after hours trading, stocks
exploded to the upside.
Bottom
line: I bring you this Huntley/Brinkley report not because the chronology of
events is so important but rather to illustrate how confused investors are
regarding Fed policy. Or perhaps better
said, how confused the Fed is regarding Fed policy.
As you know, my current
thesis is that as a result of Bernanke having introduced the possibility to Fed
tightening, whether or not it actually happens in September or December is less
important than the fact that the blind euphoria of QEInfinity is now
dissipating.
The over night pin
action is now challenging that thesis in a major way. If stocks break above their May highs, then I
will have misjudged investors’ willingness to be lemmings to a Fed policy that
has done little to meet its stated goals of economic growth and lower
unemployment but primarily has enriched the speculative class.
If not and
investors have indeed become more risk averse, then the fall after this latest
bit of Fed schizophrenia could be a hard one.
For
the bulls (short):
Here
is the best explanation that I have seen for why ‘tapering’ won’t be a
problem---economically. There are a
couple of ‘ifs’ at the end that are crucial for the Market to stay sanguine;
and note that he says nothing about investor psychology (medium):
And
the counterpoint (medium):
Investing for Survival
This
is a good illustration of why I am doing the research on ETFs:
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