The Morning Call
5/27/15
The
Market
Technical
The indices
(DJIA 18041, S&P 2104) took a lickin’ yesterday. Both closed above their 100 day moving average
but below their former all-time highs.
The S&P traded above that level long enough that it technically should
have become support. The issue now is
follow through---in either direction. A
quick rebound would leave it as support; more downside would suggest its May 20
high would become resistance.
Longer term, the
indices remained well within their uptrends across all timeframes: short term
(17247-20052, 2024-3003), intermediate term (17398-22526, 1826-2593 and long
term (5369-19175, 797-2138).
Volume rose noticeably;
breadth was terrible. The VIX spiked 16%
but still finished 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 was quite strong, closing above the upper boundary of a very short term
downtrend. This is the first indication since
mi April of a break in downward momentum.
However, it remained below its 100 day moving average and within a short
term downtrend. The key now is follow
through: a quick drop would leave the very short term downtrend in tact; another
one point move to the upside would imply a challenge of its 100 day moving
average and the upper boundary of its short term downtrend.
GLD was down big
and finished below its 100 day moving average and the neck line of the head and
shoulders pattern.
Oil was down 3%,
leaving it within a short term trading range.
The dollar rallied 1%. While the
lower boundary of its short term uptrend has been technically negated, it didn’t
remain below that trend very long and its rally back up through the trend line
has been substantial enough that another 1.5% to the upside will re-establish
that short term uptrend and set it up for a challenge of its intermediate term
trading range.
Bottom line: that
there wasn’t sufficient momentum to push the Averages to a challenge of the
upper boundaries of their long term uptrends---something that I thought was
inevitable---suggests some exhaustion among the bulls. That doesn’t mean that the end is near; we
have to see a big pick up in selling and the buyers manning the foxholes before
that happens. It does support my belief
that that the upper boundaries of the indices long term uptrends will likely
prove unassailable.
I
thought that the up dollar, up TLT, down GLD, down oil all made sense if you
assume a low inflation scenario; however, that would also suggest a rate hike
later rather than sooner which has heretofore meant higher stock prices. So can still color me confused on what
exactly is being discounted.
Charles Biderman
on falling commodity prices (medium):
Stock
performance in June (short):
Fundamental
Headlines
Yesterday
was huge for US economic data. In fact,
it represented half of all the datapoints being released this week. Most of stats were either slightly above (May
consumer confidence, the Case Shiller home price index, April durable goods), slightly
below (the May Markit flash services index) or right on (May Richmond Fed
manufacturing index) estimates. Two numbers
were well off expectations: April new home sales were over forecast while the
May Dallas Fed manufacturing index was much lower than anticipated.
On balance, the
results were a plus, especially with the upbeat April durable goods and new
home sales reports---which are primary indicators. That said, in aggregate, the data wasn’t so
positive that it would give me pause to reconsider our forecast or, in my
opinion, the data driven Fed to contemplate a sooner versus later rate hike.
***overnight
in Greece (medium):
And (medium):
David
Stockman on a Grexit (medium and a must read):
Bottom line: every
time we get a positive data dump, I caution that we need some upbeat stats just
so I don’t have to lower our economic growth forecast again. Further, a number of in line and/or slight
beats would just confirm our new outlook.
The key to considering any improvement in the growth rate would be a
whole series of reports that are well above consensus. We are not even close to that. So our forecast for sub, subpar growth is intact. That suggests more downward sales and
earnings revisions are in the offing.
Of course,
equity investors may continue to ignore any decline in the E of P/E as long as
the Fed keeps rates low. Even so, the
discount rate on corporate earnings can’t decline much further simply because
there is not much further to go. In
short, with limited upside on P/E’s and downward pressure E, what is left to
drive prices higher other than more QE? I suggest that at some point, the Fed is going
to provide too much of a good thing.
When that occurs, I haven’t a clue.
But I am just suggesting that from here the upside is limited while the
downside, while unknown, potentially includes some very large numbers. For me, that makes cash attractive, dismal
yield aside.
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
greater fool (medium):
The
latest from John Hussman (medium):
A
valuation metric for the bulls; but is that inflation number correct? (short):
Economics
This Week’s Data
The
March Case Shiller home price index rose 1.0% versus expectations of +0.9%.
The
May Markit flash services index was reported at 56.4 versus estimates of 56.5.
April
new home sales jumped 6.8% versus forecasts of up 5.8%.
May
consumer confidence came in at 95.4 versus consensus of 95.1.
The
May Richmond Fed manufacturing index was reported at 1, in line.
The
May Dallas Fed manufacturing index came in at -20.8 versus expectations of
-10.0.
Weekly
mortgage applications fell 1.6% but purchase applications rose 1.0%.
Month
to date retail chain store sales slowed further.
Other
Fears
of a global recession (medium):
Why
consumers didn’t spend the savings on lower oil prices (medium):
Chinese
stocks on a moonshot (short):
And
yet, another Chinese company defaults (medium):
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