The Morning Call
7/29/14
The Market
Technical
After
a down opening, the indices (DJIA 16982, S&P 1978) spent the day
recovering, ending almost flat on the day.
They remain above their 50 day moving averages (the Dow touched its
average in early trading then bounced) and within uptrends across all time
frames: short (16232-17711, 1919-2085), intermediate (16624-20922, 1862-2662)
and long (5101-18464, 762-1999).
Volume
was flat; breadth improved slightly. The
VIX fell, finishing below its 50 day moving average and within short and
intermediate term downtrends.
The
long Treasury declined slightly, finishing above its 50 day moving average and within
its short term uptrend and intermediate term trading range.
GLD
dropped but closed above its 50 day moving average and within its short term
trading range and intermediate term downtrend.
Bottom line: the
‘buy the dip’pers are still with us; but the list of stocks that they are buying
is narrowing. Historically, that is not
a good sign for the market. Of course,
the laggards can always catch up. But
until that starts to happen, the caution level escalates.
Our strategy
remains to do nothing save taking advantage of the current momentum to lighten
up on stocks whose prices are pushed into their Sell Half Range or whose
underlying company’s fundamentals have deteriorated.
Andrew
Thrasher’s weekly technical update (medium):
The
narrowing breadth of the NASDAQ (short):
Update
on stock performance in sixth year of the presidential cycle (short):
Margin
debt surges in June (short):
Fundamental
Headlines
We
received three secondary US economic indicators yesterday: the July Markit
service flash PMI was slightly ahead of forecasts as was the Dallas Fed July
manufacturing index; the bad news was June pending home sales were negative. These stats do little to alter our outlook;
however, they start a week of heavy activity in the economic sphere. We should have a clearer picture of the
economy by week’s end.
Overseas,
several reports indicate that the Chinese government is again supplying
liquidity and cash to local banks. If
this is a full QE, then global equity investors will certainly cheer. Indeed, it appears that the Chinese stock
markest are breaking out of four year downtrends. Whether this washes over into our Market
remains to be seen.
Bottom line: this
will be a busy week. The FOMC meets
today and will have its usual policy statement tomorrow. Yellen has made it clear that the Fed isn’t
going to tighten until the bond market absolutely forces it to; so there should
be no surprises. However, were Yellen to
pronounce that employment had improved to the point where tightening could
begin, that would likely weigh heavily on equities.
In addition, we
get the first reading on second quarter GDP along with July nonfarm payrolls and
June personal income and spending. These datapoints should give us a better
read on the economy and help remove some of my current level of uncertainty.
My
bottom line is that for current prices to hold, it requires a perfect outcome
to the numerous problems facing the US and global economies AND investor
willingness to accept the compression of future potential returns into current
prices.
I can’t emphasize strongly enough that I believe
that the key investment strategy today is to take advantage of the current high
prices to sell any stock that has been a disappointment or no longer fits your
investment criteria and to trim the holding of any stock that has doubled or
more in price.
Bear
in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and
their cash position is a function of individual stocks either hitting their
Sell Half Prices or their underlying company failing to meet the requisite
minimum financial criteria needed for inclusion in our Universe.
It
is a cautionary note not to chase this rally.
Investing for Survival
Emerging
market sovereign debt looks attractive (medium):
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