The Morning Call
5/28/15
The Market
Technical
After a rough
Tuesday, the indices (DJIA 18162, S&P 2123) bounced back yesterday. Both closed above their 100 day moving average. However, they are again out of sync on their former
all-time highs. The S&P traded back above
that level, leaving it as support; while the Dow remains below its comparable
level.
Longer term, the
Averages remained well within their uptrends across all timeframes: short term
(17247-20052, 2026-3005), intermediate term (17405-22533, 1828-2595 and long
term (5369-19175, 797-2138).
Volume fell; breadth
recovered nicely. The VIX dropped 5%+,
finishing below its 100 day moving average and the upper boundary of its very
short term downtrend. It remains a plus for stocks.
A break in the
advance/decline indicator (medium):
The long
Treasury rose fractionally, but closed below its 100 day moving average and
within a short term downtrend. However,
it remained above the upper boundary of a very short term downtrend, negating
that trend.
GLD was down slightly,
ending below its 100 day moving average and the neck line of the head and
shoulders pattern.
Oil was down again,
leaving it within a short term trading range.
The dollar was up 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: clearly,
the buy the dip crowd still has life in it.
Yet to be seen is whether it has the power to make that push the indices
to the upper boundaries of their long term uptrends. I remain of the opinion that prices will
almost surely challenge those trend lines but that any further advance will be
limited to the rate of ascent of those boundaries.
The
dollar, TLT, GLD and oil all took the day off; apparently unimpressed with
whatever was making the stock boys get jiggy.
This doesn’t improve my confusion.
Update
on sentiment (short):
Fundamental
Headlines
Following
Tuesday data dump fest, US economic releases slowed to a trickle: weekly mortgage
applications fell while purchase applications rose; the rate of growth in month
to date retail chain store sales declined for a second week in a row. In short, a mixed reading among secondary
indicators; so not a lot of information value.
Given
the NASDAQ making a new all time high, I should mention the takeover offer for
Broadcom which helped send the chips stocks on a moonshot.
No
international economic news; though once again the Greek bail out negotiations
were center stage. This time on a
statement by the Greek PM that Greece and the Troika were near a deal. Here is the statement and the Troika’s
response (medium):
http://www.zerohedge.com/news/2015-05-28/greece-feigned-deal-progress-launched-rumors-avert-bank-run
The
German denial (medium):
***overnight, Japanese April retail sales were
up modestly after three down months in a row
Bottom line: very
little in the fundamentals to account for yesterday’s rebound in equity prices---certainly
nothing in the economic outlook either here or abroad. The Broadcom takeover is just part of the QE
cheap money fueled M&A extravaganza that has kept investors wetting their
pants. Unfortunately, all this cheap
money is not being spent to increase American productive capacity or
efficiency, which ultimately will come back to haunt us. But that is a long term negative; and right
now investors can’t see much past today’s close.
The Greek news
may also be a plus, assuming that it is not more of the same crap trumpeted by
the Greek government in their ‘game theory’ approach to the Troika
negotiations. For the sake of our own forecast,
I hope that it is true. But as I have
made clear, if Greece defaults/exits all bets are off. In any case, with the S&P sniffing the
upper boundary of its long term uptrend, there is not a lot of room on the
risk/reward scale for anything short of a storybook ending.
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.
The
Fed’s pretense of knowledge (medium):
Update
on S&P earnings expectations (short):
Economics
This Week’s Data
Weekly
jobless claims rose 7,000 versus expectations of a decline of 4,000.
Other
The
$500 million spec home (short):
Politics
Domestic
Obama gets set
back on immigration executive order (medium):
http://www.zerohedge.com/news/2015-05-27/obama-loses-immigration-battle-states-block-executive-order
International
How
China’s new ‘silk road’ is altering geopolitics (medium and very interesting):
I
have to wonder if this Russian move in Ukraine is the result of or in conflict
with whatever agreement Kerry made with Putin in his recent visit?
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