The Morning Call
5/21/15
The
Market
Technical
The indices
(DJIA 18285, S&P 2125) had another dull barely down day. Both closed above their 100 day moving
average; but the Dow finished back 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
(17214-20014, 2021-3000), intermediate term (17365-22493, 1823-2593 and long
term (5369-19175, 797-2135).
Volume fell; breadth
was better. The VIX edged lower, ending below
its 100 day moving average and the upper boundary of a very short term downtrend---both
positives for stocks. I continue to
think that at current price levels, it is attractive as portfolio insurance.
Investors
failing to hedge (medium):
Traderfeed looks
at breadth (short):
Update on
sentiment (short):
The long
Treasury was up fractionally, closing 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.
GLD was up
slightly but remained 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: the
Averages traded in a narrow range for most of the day, though the Dow closed
back below its all-time high---a slight negative. Their 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’s recent pin action continues to suggest either inflation or a
re-evaluation by investors of the sustainability and/or efficacy of QE. Both clearly run counter to the message to
the stock market. Plus the volatility in
gold, oil and the dollar only add their own version of a confused message. I have no clue what long rates are going to
do; but I worry that about the ‘why’ of what they will do.
The
latest from Stock Traders’ Almanac (short):
Fundamental
Headlines
There
was one secondary economic data release yesterday: weekly mortgage and purchase
applications were down. Probably no one
cared given Tuesday’s housing starts number and everyone seemed to be awaiting
the release of the minutes of the most recent FOMC meeting.
To
summarize what has become the pattern of Fed communications
recently---confusing: the FOMC (1) thinks that the first quarter economic weakness
was transitory, (2) but it is worried about the potential impact of the strong
dollar, economic weakness in growth in China and the outcome of the Greek
bailout negotiations, (3) gave little support for a rate hike in June, (4) but
said that any decision will be data dependent and so it is not ruling out an
increase in June, (5) is concerned about the effect of a rate hike on the
markets, in view of the increased role of
high-frequency traders, decreased inventories of bonds held by broker-dealers,
and elevated assets of bond funds---all of which are a result of Fed and/or
other government agency regulatory policy.
More
(medium):
And what Fed
whisperer Hilsenrath says that they said (medium):
And
what Goldman says that the Fed model says (medium):
And
what Martin Feldstein thinks (medium and must read):
The
Fed and bubbles (short):
Mudding
the waters even more, the Bureau of Economic Analysis is parroting the San
Francisco Fed’s ‘first quarter seasonal adjustment factors are all screwed up’
thesis, suggesting that there will be indeed be some seasonal adjustments to
the seasonal adjustments. However, the
caveat in this exercise is that whatever increase is applied to the first
quarter seasonal adjustment may be taken from the subsequent quarters. In short, the overall trend wouldn’t change,
it would just be less volatile.
On the
international scene, first quarter Japanese GDP was reported up much more than
anticipated. That is the first good bit
of economic news out of that country in a long time (though remember that they
have been fibbing a lot lately). In
addition, the Bank of England kept key interest rates at record lows, adding a
small boost to the QEInfinity scenario.
***overnight,
the May EU composite flash manufacturing index was below forecasts, Japan’s was
above and China’s was negative for the third month in a row.
The
bad news is that a Greek official said that his country would be unable to make
the June 5 IMF debt payment and the ECB met to consider raising the discount it
places on the collateral Greek banks use for loans. Just to make matters worse, Moody’s warned of
Greek deposit ‘freeze’ (medium):
Bottom line:
(1)
the FOMC minutes---as usual you need linguistics expert
to decipher the message, assuming that the Fed even knows or is willing to
admit what it really believes. With the
BEA apparently ready to adjust first quarter seasonal factors, the optimists
can once again cease ignoring the economic data. The question is, after all this jerking
around with first quarter data, what happens if the second quarter isn’t
materially better---which you will recall the Atlanta Fed has already forecast.
The most stunning part of those minutes was the Fed’s
acknowledgement that its primary reasons for its concern with raising interest
rates are largely the result of its own policies. I am just not sure why the sudden baring of
its soul: [a] admitting that it can’t increase rates is its own fault or [b] apologizing
in advance for when it does. Color me
confused.
What the Fed hath wrought (medium):
(2)
the improvement in the Japanese GDP figure. The key now is, like our own housing numbers,
follow through.
(3)
Greece is one day closer to default and intensity of
its food fight with the Troika only escalates.
I have said before that the euros are masters of pulling back from the
brink; but so far, there is no evidence of that happening. I remain cautious about the impact of the
final outcome.
This is a pretty
good assessment of the alternative outcomes (medium):
And then there
were two: Portugal vows no more austerity (medium):
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.
Is
Dr. Copper sending a message? (short):
When
what’s working no longer works (medium):
Final
earnings and sales ‘beat’ rate for the first quarter (short):
Economics
This Week’s Data
Weekly
jobless claims rose 10,000 versus expectations of up 6,000.
The
April Chicago Fed national activity index came in at -.15 versus estimates of
+.10.
Other
I
normally look with skepticism on any ‘paper’ coming out of bureaucracies, like
the IMF; and, hence, I should with this one also. But the thesis it puts forth (the declining
marginal value of more financial products) is intriguing and seems to reflect
economic history since the 1990’s. This
is a good read and worth thinking about, whether you agree or not. (medium):
This
summary of a recent Chinese government economic outlook is a bit confusing when
compared to its also recently announced QE; either that or the Chinese are just
knowing making the same mistake as the rest of the world’s central bankers
(medium):
April
architectural billings (short):
Five
banks including Citi, JP Morgan and Bank of America plead guilty to currency
manipulation---but no one goes to jail (medium):
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