The Morning Call
5/19/15
The
Market
Technical
The indices
(DJIA 18298, S&P 2129) climbed again yesterday. Both closed above their 100 day moving
average and the S&P remained above its all-time high while the Dow managed
to close right on its comparable level.
Longer term, the
indices remained well within their uptrends across all timeframes: short term
(17194-19991, 2016-2995), intermediate term (17337-22465, 1823-2593 and long
term (5369-19175, 797-2135).
Volume fell; breadth
remained mixed for a second day---which should be troublesome for the bulls. The VIX actually rose, a bit unusual on a
Market up day. Nevertheless, it is still
below its 100 day moving average and the upper boundary of a very short term downtrend---both
positives for stocks. The lift may be,
as I have suggested, a sign that at current price levels, it is attractive as
portfolio insurance.
Should you be
worried about the declining Transports (medium)?
The long
Treasury was down over two points on volume, (1) reversing Friday’s move up, (2)
keeping it below its 100 day moving average and the upper boundary of a short
term downtrend and (3) again highlighting its higher growth/higher inflation implications
versus the lower growth/more QE implications of rising stock prices. I am not going to stop worrying about the
seeming underlying differences between stock and bond investors’ economic
outlooks. I have no idea how all these
factors resolve themselves. But till
they do, I think patience is needed.
GLD traded back
down and settled right on the neck line of the head and shoulders pattern. That invalidates Friday’s break out. That doesn’t mean that GLD is rolling over; it
does means that GLD’s recent price action has made me cautious of any move by
GLD in either direction.
Oil was down
slightly yesterday, leaving it right on the upper boundary of its short term
trading range and (2) the dollar was up but remained below its 100 day moving
average and the lower boundary of its recently broken short term uptrend.
Bottom line: the
bulls remain in control, having pushed the Averages above the recent trend line
of lower highs and a short hair close to being above their all-time highs
(S&P is above, the Dow right on this level). So they are step closer to assaulting the upper
boundaries of their long term uptrends---which I continue to believe they will
be unable to successfully challenge to
any meaningful extent.
That does not
mean that if they can’t push through those boundaries that they are headed a
lot lower. Longer term, the trends are
solidly up and will be so until the short term uptrends, at the very least, are
negated.
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.
A
pretty good technical bull argument (short):
Fundamental
Headlines
Yesterday
was a pretty dull day, economic stat wise.
We did get one US number: the NAHB builders’ confidence index was below
expectations. No data from overseas.
***overnight,
UK and EU April CPI came in above expectations; and an ECB executive said in a
speech that the ECB intends to ‘front load’ its QE---sending another thrill
through the legs of the stock boys.
There
were two articles on the domestic economy that I thought worthy of your
attention. The first is from former Fed
member Bob McTeer pointing out that it is getting harder to ignore the lousy
economic data (medium):
The
second is an almost laughable piece from the San Francisco Fed, pointing out
that if first quarter data’s seasonal adjustment factors had been doubled, the economy
would have looked stronger (medium):
The
other newsworthy item is what has become a streaming narrative on the Greek
bailout endgame, which is not looking positive (medium):
***overnight,
Merkel having problems selling a bail out (medium):
Bottom line: the
two points above are:
(1) more and
more folks are noticing that the US economy is not doing well. Sooner or later that shows up in the economic
and corporate profit growth forecasts which probably won’t help
valuations. How long the Market dreamweavers
can ignore the E in P/E is the $64,000 question especially when long Treasury
rates (the bogie for the discount factor in valuations) keep rising.
Bank of America
urges caution (short):
More
on valuation (medium):
(2) the final act of the modern Greek tragedy
is at hand. We can’t rule out some convoluted
‘kick the can down the road’ solution.
Gosh only knows that the euros are masters at that. On the other hand, reading the above link,
positions seemed have harden to the point that some economic dislocation will
take place. If so, then the question is,
is it is fully discounted in the Market?
Clearly it has been a news item long enough that it should have
been. However, I continue to believe
that there will be unanticipated consequences primarily because the exit from a
major currency union hasn’t happened before.
That could cause heartburn.
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.
Latest
from John Hussman (medium):
Economics
This Week’s Data
The
May NAHB builders’ confidence index was reported at 54.0 versus expectations of
56.0.
April
housing starts smoked estimates, riding 20.2% versus estimates of up 11%.
Other
Don’t
be so sure that the economy will return to ‘normal’ (medium):
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