The Morning Call
The Market
Technical
The
indices (DJIA 14937, S&P 1655) inched higher yesterday. The Dow remains within its short term trading
range (14190-15550), while the S&P continues to confuse me as to its
primary short term direction. Both are
below their 50 day moving averages; while the DJIA is below its 100 day moving
average and the S&P is above. In
short, the short term direction of the Market continues uncertain.
Nevertheless,
both of the Averages are well within their intermediate term (14715-19715,
1568-2154) and long term uptrends (4918-17000, 715-1800).
Volume
fell; breadth was mixed. The VIX was off
fractionally, closed within its short term trading range and its intermediate
term downtrend. Its recent price action
reflects a trendless short term Market.
The
long bond got whacked again, leaving it within its short term downtrend.
GLD
also took it in the snoot. It is nearing
the lower boundary of its very short term uptrend, but remains within its short
and intermediate term downtrends. I
previously noted that if GLD trades down to that lower boundary of its very
short term uptrend and bounces, I would be tempted to nibble. GLD is now close; I am waiting for the
rebound.
Bottom line:
there remains no clear trend in the Averages; though on balance there are more
negatives at the moment than positives.
Yesterday’s pin action---stocks up, bonds down, gold down---suggests one
of two thing or perhaps both: a stronger economy, therefore, an increased
likelihood of ‘tapering’ [better profits, higher interest, less fear] and/or a
declining probability of US involvement in Syria [investor relief, less
pressure to find safe havens like bonds and gold]. Either or both would be fine by me. That said, one day’s performance is not a lot
to make a bet on. Hence, I think the
best place to be is the sidelines.
Our
optimist on interest rates (medium):
Valuation
versus the VIX shows complacency (short):
Fundamental
Headlines
Yesterday’s
US economic stats were upbeat (as has the data flow for the entire week): the
August ADP private payroll number was up, in
line; weekly jobless claims fell; second quarter productivity and unit labor
costs were better than expected; July factory orders declined less than
anticipated; and the August ISM nonmanufacturing index was very strong.
Investors
were seemingly in a ‘good news is good news’ frame of mind, i.e. strong
economic numbers means a better economy that won’t be negatively impacted by
‘tapering’, so equity prices were up while bond and gold prices fell. Or, as I noted above, it could also mean
that they were breathing a sigh of relief as the likelihood of congressional
approval of military action in Syria
appeared (at least temporarily) to decline.
That
said, I think that the Fed remains confused and conflicted over what to do
about ‘tapering’ and I know that Obama doesn’t have a clue what to do about Syria . That heightens the odds of an unexpected turn
of events. So while I am encouraged by
both the better economic numbers and current lack of support for Syrian
intervention in congress, too much uncertainty remains on both counts to get
jiggy about either.
Bottom line: as
I noted yesterday, the improving economy and the lessened risk of US
involvement in Syria
are positive. However, remember that our
forecast calls for a growing economy and no war in Syria . So the fact that they are happening as we
planned is good but it does nothing to alter our Model’s Fair Values---which as
you know prices equity values much lower than current levels.
The only way
that I can get our Model to reflect present prices is to assume that the Fed
transitions money supply from easy to tight with relative success and the our
political class can come to a ‘grand bargain’ (lower government spending,
reform taxes, lower government interference in the economy [cough, Obamacare,
cough]). Since history tells us the Fed
will fail and the evening news tells us that our ruling class has no motivation
to act in a fiscally responsible manner, I have to stick with our economic forecast
and the results of our Valuation Model.
A
pictorial of the naval standoff in the Mediterranean
(short):
This on Syria
from one of my favorite liberal blogs (medium):
Spill over into Iraq
(short):
Finally, the good news
(short):
No comments:
Post a Comment