The Morning Call
4/24/15
The Market
Technical
The indices
(DJIA 18058, S&P 2112) continued their move up. Both remained above their 100 day moving
averages. The Dow closed below its prior
high---keeping the series of lower highs intact; however, the S&P finished
right at the level of its prior high.
Longer term, the
indices remained well within their uptrends across all timeframes: short term
(17022-19819, 1993-2974), intermediate term (17149-22275, 1802-2575 and long
term (5369-18873, 797-2129).
NASDAQ scores a
new high (short):
Volume was flat;
breadth mixed. The VIX declined, falling for a second day below the lower boundary
of a developing pennant formation for the second time, negating that formation
(again). Two points: (1) this has
positive implications for stocks and (2) however, the VIX is near the lower boundary
of its long term trading range time which should act a major support. Because of that proximity, I continue to
think that the VIX remains a reasonably priced hedge.
More on breadth
(short):
More on the VIX
(short):
Update on
sentiment (short):
The long
Treasury rallied, but remained below its 100 day moving average and the lower boundary
of its very short term trading range, negating it. My focus is now on the level of the
converging lower boundary of its short term trading range (I mistakenly said ‘downtrend’
in yesterday’s Morning Call) and the lower boundary of its intermediate term
uptrend. If those trends are violated, it
may well spark sales of at least a portion of the muni bond positions in our
ETF Portfolio.
GLD rose, remaining
below its 100 day moving average and continuing to form a head and shoulders
pattern.
Oil jumped
again, finishing back above that boundary line that started as an upper boundary
of a short term trading range (resistance), then became support, reverted to
resistance and is now back to support.
Clearly, there is a battle between the bulls and bears on oil around
that boundary line. The only thing to do
in that situation is wait and see which side takes control.
Bottom line: the
indices are challenging the current trend of consecutively lower highs which,
if successful, would leave them with one last barrier (their former all-time
highs) to cross before an assault on the upper boundaries of their long term
uptrends. Whatever their success in
topping their former highs, I continue to believe that those upper boundaries
of their long term uptrends will be too powerful to allow a successful break.
Fundamental
Headlines
Three
US economic releases yesterday; three disappointments: rising jobless claims,
poor PMI, really lousy new home sales. So
much for Wednesday’s one day reprieve in the midst of a thirteen week trend of discouraging
data.
Overseas,
it was much of the same:
(1) the Bank of
Japan said that it may not reach its 2% inflation goal until 2016; and even if it does, a former BOJ
official said that it would be impossible to curb QE because of the catastrophic
impact higher interest rates would have on the BOJ balance sheet,
(2)
Chinese and EU April PMIs were below expectations. In the case of the Chinese, its PMI indicated
contraction.
None of the
above is great news; however, the European PMI brought to a halt the three week
trend in improving EU economic data. Now
the question is, which is the outlier: the
latest number or that three week string of upbeat stats? We will know in the fullness of time.
***overnight,
Greeks blasted at ECB finance ministers meeting as ‘wasting time’ (medium):
And small wonder
as the Greek government keeps adopting policies that only make matters
worse---in this case, writing off debt of those who qualify as being in poverty
(medium):
Bottom line: there
was nothing in yesterday’s data to suggest that the growth rates of either the
US or the global economies aren’t slipping or, even worse, headed for
recession. The good news, at least for
the QE forever investing crowd, is that these disappointing stats will lead to
even more QE forever. At least that is
what they think.
What has been an
unexpected positive is the results of this season’s earning results; that is,
reports are coming in ahead of expectations.
Of course, those current ‘estimates’ had already been lowered on average
by over 11%. Nevertheless, I have to
admit it is a surprise to me; and I am the guy who has credited what limited
economic growth the US has experienced to the smart, hardworking, enterprising
corporate sector. Still with thirteen
weeks of deteriorating macro data, sooner or later, something has to
give---either a pickup in economic growth or a fall in earnings.
Plus, I would
argue that however smart, hardworking and enterprising US industry is: (1) it is getting no help from foreign markets,
(2) at least a portion of its success is attributable to financial engineering
[selling debt to buy back stock and creative accounting] to which there is a limit. Which is not to say that this story is at an
end; it is to say that it has an end and we get closer every quarter.
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.
David
Stockman on stock market bubbles worldwide (medium and a must read):
An
interesting thought: Is the US economy’s secular growth rate slowing but
becoming more stable? If so, what does
that do to valuations? In our Model, it
would shrink the valuation range; that is, the Buy Value Ranges would move up
and the Sell Half Ranges would decline.
I am not sure I believe this thesis but it is something to ponder and do
more study on. (medium):
Investing
for Survival
Lessons
from four all-star investors (medium):
News on Stocks in Our Portfolios
o
o
Operating Expenses: 323.9
(+5.8%); Operating Income: 184.6 (+0.5%); Net Income: 139.8 (-5.8%); EPS: 1.82
(-2.2%); Non-GAAP EPS: 2.10 (+9.9%).
·
Revenue of $21.73B (+6.5%
Y/Y) beats by $670M.
Economics
This Week’s Data
The
April US Markit flash PMI was reported at 54.2 versus estimates of 56.0.
March
new home sales fell 11% versus expectations of a 3% decline.
March
durable goods orders soared to +4.0% versus forecasts of +0.5%; however, ex the
very volatile transportation sector, they fell 0.2% versus estimates of +0.3% and
the February report was revised down significantly.
Other
Median
household income declined in March (medium):
The
commercial real estate boom (short):
The
banksters do it again: JP Morgan bans the use of cash to make certain payments
(medium):
Politics
Domestic
Accounting at
the Clinton Foundation (short):
International War Against Radical Islam
Another
foreign policy expert on Obama’s Iran policy (medium):
Quote of the day (short):
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