The Morning Call
5/29/15
The
Market
Technical
The indices
(DJIA 18126, S&P 2120) drifted lower yesterday. Both closed above their 100 day moving average. However, the Dow finished below its former all-time
highs, while the S&P closed right on that level.
Longer term, the
Averages remained well within their uptrends across all timeframes: short term
(17266-20071, 2028-3007), intermediate term (17425-22553, 1828-2595 and long
term (5369-19175, 797-2138).
Volume fell as
did breadth. The VIX was slightly
higher, but ended below its 100 day moving average and the upper boundary of
its very short term downtrend. It remains a plus for stocks.
The long
Treasury declined fractionally, finishing below its 100 day moving average and
within a short term downtrend.
GLD was up slightly,
ending below its 100 day moving average and the neck line of the head and
shoulders pattern.
Oil rose but
remained within a short term trading range.
The dollar was down fractionally, finishing well above the lower
boundary of that short term uptrend which had been technically negated. It is near the upper boundary of a developing
very short term downtrend. If it pushes
through that level, I will re-instate the short term uptrend.
Bottom line: neither
the bulls nor bears seem to be able to generate any follow through. That suggests to me that neither side feels
terribly confident in its position which probably means that stocks are going
nowhere in the absence of defining news event.
I remain of the opinion that the Averages will almost surely challenge
the upper boundaries of their long term uptrends but that any further advance
will be limited to the rate of ascent of those boundaries.
The current bull
market in length and magnitude versus prior bull markets (short):
***overnight,
Chinese stocks are crashing for a second day.
Fundamental
Headlines
Yesterday’s
US economic data included a disappointing weekly jobless claims number but
strong pending home sales data, the latter carrying a bit more weight than the
former---‘a bit’ more being the operative words.
Overseas,
April Japanese retail sales were up after three down months in a row. This is that country’s third upbeat datapoint
in two weeks. Promising but not
definitive. However, were it to continue
and the EU shows more economic improvement, it would do wonders for our ‘muddle
through’ scenario.
***overnight,
the series of better Japanese stats ended abruptly as household spending fell
1.3% (the thirteenth decline in as many months) and inflation came in at 0.00%;
first quarter Swiss GDP declined 2.0% while Greece dropped 0.2%.
Another
day older and closer (T minus 8) to default for the Greeks. Most observers seem to believe that there will
be some resolution however inadequate it is in long term. I am not sure what odds they are placing on
that assumption; but every day that goes by, the probability of a misstep by
one or more of the involved parties rises.
It won’t be long now.
The
latest on the Greek bail out end game (medium):
***overnight,
IMF says a Grexit is a ‘possibility
Bottom line: absent
today’s economic data releases, this week’s US numbers will end up in a wash. The Japanese retail sales stat along with
recent EU data offers hope that the global economy may have stopped retreating;
although the economic news out of China, its stock market notwithstanding, is not
comforting. That said, there is a ‘muddle
through’ assumption in our Models; and if the above is the definition of ‘muddling
through’ then the problem is that, with that assumption, the S&P is now
priced roughly 40% over our Valuation Model’s current Fair Value (1499). In
short, we need all the good news we can get.
So you can see
my concern with declining forward guidance in earnings, the prospect for financial
crisis in Europe resulting from a Greek default/exit or an interest rate spike
that alters the valuation bogey for equities.
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.
Understanding
why the ten year returns in equities looks so abysmal (medium):
Chasing
the tape (medium):
The
excesses currently visible in the stock market (medium and today’s must read):
Economics
This Week’s Data
April
pending home sales rose 3.4% versus expectations of being flat.
Revised first quarter GDP
came in at -0.7% versus estimates of -0.8%; the price deflator was -0.1%, in
line; corporate profits were -5.9%.
Other
Politics
Domestic
More on Obama’s
immigration reform executive action (medium):
International War Against Radical
Islam
Ukraine’s
response to the latest buildup of Russian weapons on its border (medium):
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