The Morning Call
The Market
Technical
The
indices (DJIA 15470, S&P 1680) returned to their winning ways
yesterday. They remain within their
short term trading ranges (14190-15550, 1576-1687) and the intermediate term
(14364-19364, 1525-2113) and long term uptrends (4918-17000, 715-1800). The flattish pin action of the last week is
just what the bulls ordered---working off an overbought position by marking
time. Without any additional movement to
the downside, this trading pattern appears to be setting up for another assault
on 15550/1687; and the longer it goes on, the more likely it is to be
successful.
Volume
inched up; breadth improved. The VIX fell but remained above the former lower
boundary of a very short term uptrend; so I am delaying making a call on the
successful negation of that uptrend for another day.
GLD
dropped, falling back below the lower boundary of its short term
downtrend. Ugh.
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.
Another
indicator is flashing a Sell signal (short):
Hot
Julys are generally followed by a rough autumn (short):
Fundamental
Headlines
The
two primary datapoints yesterday focused on the housing market: weekly mortgage
applications were down, though the more important purchase applications were
up; June housing starts and building permits were quite negative. Immediately after the release of those
housing numbers, pundits jumped all over the figures and pronounced them an
aberration---citing weather and other factors for the shortfall.
I
am inclined to accept that explanation---for the time being. Certainly, the stats are an outlier viz a viz
the recent data flow. So the issue is,
are they, indeed, an outlier or are they a sign of things to come? As I said, I will accept the former
explanation unless the current flow of stats takes a turn for the worst.
Here
is the apologists argument:
The
remainder of the day was taken up by the Fed.
First, we were rewarded with an hour or so of very cautious testimony by
Bernanke before the house. We learned
little new from either the pre-released official comments or his Q&A. We did learn, as Art Cashin so apply
observed, that even with the early release of his remarks, the house members
still couldn’t or wouldn’t challenge him on a single issue---very
disappointing.
I
am also left grappling with the issue of investor trust in the Fed. As you know, my argument has been that the
whole ‘tapering’ fiasco took the ‘bloom off the Fed QEInfinity rose’. With stocks below the May 22 high and
Bernanke having completely walked back his original statement, I think that the
issue is still undecided. However, a
move up above 15550/1687 would disprove my thesis, at least for the moment.
Goldman
Sachs on Bernanke’s testimony (short):
Bernanke’s
quote of the day or Thursday morning humor (short):
He
apparently hasn’t seen these charts (medium):
Later
in the day, the Fed released its latest Beige Book report. As might be expected from the recent data
flow, the overall look at the economy was that it was progressing at a modest
to moderate pace. Again no new news (see
below for the most relevant excerpts from the text).
Bottom line: stocks are overvalued fundamentally, at least
as measured by our Valuation Model. In
addition, a risk/reward analysis based on the major technical trends is not
particularly attractive (upside 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).
So I see few reasons to be Buying
stocks at current levels. A move above
15550/1687 would encourage a continuation of Selling as our stocks move into
their Sell Half
Ranges
Robert
Shiller on speculative bubbles (medium and a must read):
The
dash for trash (short):
Subscriber Alert
The
stock price of CR Bard ($112) has traded above the upper boundary of its Buy
Value Range BCR .
The
stock price of Atrion ($237) has traded above the upper boundary of its Buy
Value Range ATRI
The stock price
of ConocoPhillips (COP -$65) has traded into
its Sell Half
Range
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