The Morning Call
The Market
Technical
The
indices (DJIA 15224, S&P 1640) pushed higher yesterday. The Dow closed right on the downtrend off its
May 22 high, while the S&P finished above it. A higher close today will negate this very
short term downtrend and set the short term trend to a trading range
(1576-1687).
Both
of the Averages remain well within their intermediate term (14295-19295,
1517-2105) and long term uptrends (4783-17500, 688-1750).
Volume
rose; breadth was mixed. The VIX fell
fractionally and continues to struggle to re-set its short term trend to a
trading range.
GLD
rose but remains in a steep decline and outside the boundaries of all major
trends.
Bottom line:
bulls appear to be re-gaining the upper hand, having taken stocks up thru their
50 day moving averages and are knocking on the door of negating the downtrend
off the May 22 high. Most of the stocks
in our Universe remain in short term downtrends, though fewer than our last
check. Nevertheless, another strong day
or two could change all that.
Any additional
move to the upside that takes any of our stocks into their Sell
Half Ranges
A
look at the worst six months of the year (short):
Fundamental
Headlines
No
US economic
news yesterday, though investors seemed to be basking in the glow of Friday
jobs report. That gave the Market a
positive bias at the opening and it lasted all day despite some lousy data
(industrial production and net exports) out of Germany .
Not
surprising to me, the chatter among the pundits reveals a growing acceptance of
‘tapering’; but what does surprise me is that aren’t concerned about it. Their attention has shifted from ‘QEInfinity’
to ‘an improving economy’ as a driving force in stock prices---suggesting that
they have quickly overcome their concerns about higher interest rates and are
seemingly unworried about the lack of evidence that the rate of economic growth
is improving, the declining expectations for earnings growth (see yesterday’s
Morning Call) and continued credit problems in China and Europe (see below).
In
other words, it seems that as long as the carry trade works, investors will
find a reason to buy stocks, however illogical the transition in the reasoning
process
Bottom line: I
opined in the last note that (1) whether or not the Fed could convince
investors to again drink the QE/the Fed has your back Kool Aid would likely to
determine Market direction, at least in the near term and (2) I was
skeptic.
Well, it appears
that investors have concluded that ‘tapering’ is now good news because it means
the economy is improving (sort of).
While I have long argued that the economy was growing albeit at a
sluggish pace, I have yet to see any evidence that its rate of growth is
suddenly improving. If that growth rate
were changing positively, then it would give reason for better valuations. But as I said, it is not.
Indeed, the
positive argument for stocks is not that the economy is improving but seems to
be that our economy is the ‘nicest house on an ugly street’; hence, buy US
stocks. My problem with that case is
that our economy doesn’t exist in a vacuum.
To be sure, US
managers have done a stellar job in running their business; I have noted
endlessly that given our own headwinds (too much government spending, too high
taxes, too much regulation), we can thank them for economic progress that has
been made.
However, Europe
is in recession, China
is teetering on the brink of a credit crunch, Japan
is a basket case and emerging markets are slowing. How then does our economy pick up steam when
(1) nothing has been done to lessen the impact of the aforementioned domestic
constraints and (2) the rest of the globe is growing very slowly at best? You see my confusion.
***over night,
the White House lowered its 2013 GDP growth
expectations to 2.0% from 2.3%, China reported rising inflation and the
Portuguese opposition party is calling for elections.
So my conclusion
hasn’t changed: I simply can’t get the
assumptions plugged into our Models positive enough to justify current
valuations. So I remain cautious and our
Portfolios will continue to take advantage of any upward price movement that
drives any of our stocks into their Sell
Half Ranges
The
latest from John Hussman (medium):
A
bond market indicator turns negative (short):
And,
are interest rates about to blast off? (medium):
Nearing
a peak in the election cycle (short):
Investing for Survival
25
steps to prepare for an emergency:
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