The Morning Call
The Market
Technical
Yesterday
was another roller coaster for the indices (DJIA 14844, S&P 1639). The Dow remains within a short term trading
range (14190-15550) and below its 50 and 100 day moving averages.
The S&P by
all rights has re-set to a short term trading range (1576-1687) by closing
below the lower boundary of its short term uptrend (1641-1796) for the last
five trading days. However, because this
penetration has been so minor, I am hesitant to call for a re-set. On the other hand, its rallies have been
anemic and it remains below its 50 and 100 day moving averages. In the final analysis, I am conflicted about
making the ‘re-set’ call; so I am procrastinating.
Both
of the Averages finished within their intermediate term (14715-19715,
1565-2151) and long term uptrends (4918-17000, 715-1800).
Volume
rose; breadth improved. The VIX
declined. It continues to meander directionless
within its short term trading range. Its
intermediate term downtrend seems to be of little influence.
The
long bond got whacked, falling back below the upper boundary of its short term
downtrend, thereby failing to confirm the break of this trend---not a plus for
stocks.
GLD
rose, continuing to trade firmly within its very short term uptrend and above
its 50 and 100 day moving averages. On
the other hand, it is also well within its short and intermediate term
downtrends. At this point, I think that
the risk/reward of a GLD purchase is weighed modestly to the risk side. Were it to retreat to the lower boundary of
its very short term uptrend and hold, that would alter that equation and I
would be tempted to nibble.
Bottom line: the
S&P has technically moved back in to unison with the DJIA, though I am not
quite ready to make that call for the reasons stated above. If there is any follow through to the
downside, that would provide the impetuous for the change in trend---and that
would not be a positive for stocks.
Other factors arguing for a more cautious approach to stocks (1) the
indices having taken out their 50 and 100 moving averages and (2) yesterday’s
reversal in the bond market, keeping it in a short term price downtrend.
All that said,
the recent volatility in stocks, bonds and gold growing out of the potential US
involvement in Syria
makes a confident call in direction in any of these Markets almost
impossible. So I am taking the coward’s
way out, remaining vague and noncommittal.
This is a Market to be avoided unless you are a skilled trader.
NYSE
margin debt near highs (short):
Fundamental
Headlines
The
US economic
stats released yesterday were mostly upbeat:
July construction spending and the August ISM manufacturing index
surpassed expectations while the August Markit PMI
came in slightly below estimates but in the plus nonetheless.
Foreign
data was also positive: the Chinese nonmanufacturing PMI
as well as the EU manufacturing PMI were
better than forecasts.
The
above numbers (good news is good news) along with Obama’s over-the-weekend
crawfishing on Syria (insisting on congressional support for His plan [a] at
the least, delayed the action {war} and [b] could result in a no action vote by
congress) had investors getting jiggy in morning trading. Then Boehner came
out, gave his support to Obama’s plans to bomb Syria
(lessening the probability of a no action vote) and stocks gave up much of
their earlier increases.
Just
to be clear, I am with the Market all the way on the Syrian issue. Intervention is a negative: (1) the US has no
strategic interest in Syria, (2) if Assad is deposed, he will likely be
replaced by an equally anti-US regime, (3) there is a risk of a much larger
conflagration if Russia and/or Iran react, (4) on the off hand chance that they
don’t react, any US action will likely not be a positive for oil prices and,
hence, the global economy, (5) Obama drew the ‘red line’ on His own; let Him
suffer the consequences for His own foolish behavior, and finally, (6) there is
no telling what the spill over effects will be on ‘tapering’, replacing
Bernanke, the continuing budget resolution and the debt ceiling negotiations.
In other words,
the US has its
own set of problems that it is far more important to resolve than taking
retribution for some dead Syrians---which I say with all due respect to those
killed. Any military action that allows
our political class to gloss over or ignore those problems would be a negative
for the electorate. Certainly, investors
have taken those issues off center stage for the moment. But they are there, they have to be dealt
with and soon. And if they are not, the
longer term economic and Market consequences may be much more important than
avenging the unseemly death of what in all likelihood were not ‘innocent’
civilians but rather combatants and their families who have just as hostile an
attitude toward the US
as Assad.
***last
night the senate foreign relations committee approved military action in Syria .
Bottom line: stocks
remain overvalued at least as calculated by our Valuation Model. While the economy continues to improve, the
transition from easy to tight money is upon us and, in my opinion that will not
be a painless exercise. In addition, our
political class must deal with several contentious economic issues (the
continuing budget resolution, the debt ceiling, the kick in of 2014
sequestration and the growing opacity of Obamacare) over the next 30 days. Getting that job done responsibly maybe be
more than any of us can expect. But it will
certainly be that much more difficult if we are fighting over intervention is Syria
and/or trying to prevent its escalation once it starts.
None of this
makes me feel all warm and fuzzy on the inside about either the economy or the
Market. We may escape from these trials
unscathed; but we may not. And that
should give us all pause when we contemplate our equity exposure.
The
number one threat to the economy (medium):
Who
are you going to believe, the Fed or your lying eyes (medium):
The
latest from Mark Grant (medium):
The
latest from Marc Faber (9 minute video):
More
on valuation (short)
The
latest from Ed Yardeni (short):
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