The Morning Call
5/22/15
The
Market
Technical
The indices
(DJIA 18285, S&P 2130) did little yesterday---the Dow ending flat and the
S&P up 5 points. Both closed above their
100 day moving average; but again the Dow finished below its all-time high
while the S&P remained above its comparable level.
Longer term, the
indices remained well within their uptrends across all timeframes: short term
(17220-20020, 2021-3000), intermediate term (17365-22493, 1823-2591 and long
term (5369-19175, 797-2138).
Volume rose
slightly; breadth was a little better.
The VIX fell 6%, closing below its 100 day moving average and the upper boundary
of a very short term downtrend---both positives for stocks. The further it drops, the more attractive it
is as portfolio insurance.
The long
Treasury was strong but still remained below its 100 day moving average, the
upper boundary of a very short term downtrend and near the lower boundary of a short
term downtrend. I will also note that
the charts of almost all the bond indices and ETF’s that I watch are just as
sick as TLT.
GLD was down and
finished below its 100 day moving average and the neck line of the head and
shoulders pattern.
Oil rose slightly
but still closed below the upper boundary of its recent short term trading
range; while the dollar was also up a tad, leaving it above the lower boundary
of its recently broken short term uptrend.
Bottom line: yesterday’s
pin action was a non-event; so my thoughts are the same: ‘Their (the indices) pin action of the last
couple of days could be interpreted in two ways: a consolidation before a
challenge of the upper boundaries of their long term uptrend or the buyers
blowing their wad trying unsuccessfully to break materially higher. As I said yesterday, having come this far, I can’t
believe that the indices won’t attempt an assault on the upper boundaries of
their long term uptrends. On the other
hand, I continue to believe they will be unable to successfully challenge to
any meaningful extent. So the risk/reward
is not favorable on a technical basis. I
think that argues for caution.’
The
long Treasury continues to act poorly, which is not a surprise given the
confusion over Fed policy as expressed in the FOMC minutes and the uncertainty
over economic progress created by recent Fed bank statements.
Fundamental
Headlines
It
was a huge day for US economic data.
Unfortunately, almost all of the numbers were disappointing: weekly
jobless claims, the April Chicago Fed national activity index, the May Markit
flash manufacturing index, the May Philadelphia and Kansas City Fed
manufacturing indices and April existing home sales. The one positive was the April leading
economic indicators. One, note that all
except weekly jobless claims were second quarter stats; so any revisions in
first quarter seasonal adjustments are not in play. Two, the lousy existing
home sales are something of an offset to the prior reported new home sales (in
fact, in order of magnitude they are about ten times larger).
Lance Roberts on
housing (medium and a must read):
The
international economic data weren’t much better. The May Markit composite PMI’s for the EU and
China were disappointing. Indeed, China’s
number was the third decline in as many months.
The good news was that Japan’s comparable stat was upbeat. That is the second good datapoint in a row
for Japan, so its economy may have finally hit bottom.
***overnight,
Bank of Japan keeps QEInfinity in place; April German business confidence fell;
Draghi warns that QE can’t do it all and that fiscal reforms are essential to
returning the EU to historical growth rates.
While
there were no news items on the Greek/Troika negotiations, that in itself was
bad news since the timeline for a resolution is very short; and every day that
goes by with no progress brings a default or Grexit closer to a reality.
The
latest on the Greek/Troika negotiations (medium):
***overnight,
the Greek, French and German leaders met and adjourned with no agreement but
said that ‘significant progress’ had been made.
Bottom line: after
Tuesday’s positive new home sales and Wednesday’s San Francisco and New York
Fed’s attempts to put some lipstick our economic pig, yesterday’s download of
crappy data re-introduced us to reality.
Whatever the outcome of any first quarter economic data revisions, those
numbers were an indication that the second quarter is going to be
lousy---unless, of course, the bureaucrats just keep adjusting the seasonal
adjustments to meet their dreamweaver forecasts.
Speaking of
dreamweavers, the Japanese reported a positive May PMI---which follows Wednesday’s
improved GDP figure. Like Europe, we can
only hope that this is a sign of a better Japanese economy. Restraining my enthusiasm is their government’s
propensity to fudge the numbers to fit the forecast. However, my cynicism at this point should be
taken with a grain of salt. In truth,
there is nothing at present to cast doubt on the validity of these numbers
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.
Ready
for a Market re-set? (medium):
Earnings
and the S&P (short):
More on valuation
(short):
Economics
This
Week’s Data
The
May Markit flash manufacturing index came in at 53.8 versus expectations of
54.6.
The
May Philadelphia Fed manufacturing index was reported at 6.7 versus estimates
of 8.0.
The
May Kansas City Fed manufacturing index came in at -13 versus an anticipated drop
on 2.
April
existing home sales fell 3.3% versus a flat consensus.
April
leading economic indicators rose 0.7% versus forecasts of up 0.3%.
April
CPI was reported at +0.1%, in line; ex food and energy, it was +0.3% versus
expectations of +0.1%.
Other
Risk
aversion is the problem (medium):
Update
on the state of student loans (medium):
Politics
Domestic
International
Soros
on China and Europe (medium):
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