The Morning Call
6/26/15
The
Market
Technical
The Averages
(DJIA 17890, S&P 2102) fell again yesterday. The S&P remained above its 100 day moving
average; but the Dow finished below its comparable level for a second day. Both ended below their prior highs (18295,
2135). My very near term focus continues
to be on indices behavior around those 100 day moving average support levels.
Longer term, the
Averages remained well within their uptrends across all timeframes: short term
(17445-20251, 2053-3032), intermediate term (17638-23788, 1849-2617) and long
term (5369-19175, 797-2138).
Volume declined;
but breadth was mixed. The VIX (14) was up
another 6%, finishing near but below its 100 day moving average and within a
very short term downtrend and a short term trading range. Anything
below 13, I believe offers value as portfolio insurance.
Percentage of
stocks above their 50 day moving averages (short):
https://www.bespokepremium.com/think-big-blog/sp-500-breadth-of-stocks-above-50-day-moving-averages/
The long
Treasury made a slight comeback, but still closed below its 100 day moving
average and the upper boundaries of very short term and short term downtrends.
I remain a little concerned about the differing pin actions in the equity and
bond markets. Barring a meaningful pickup
in longer term economic activity, TLT shouldn’t be 15% off its high. Of course, I could be wrong on economic
growth; but if so, why is the stock market vacillating? Or maybe it is the Greek bail out
problem. However, if it is going to
rescued which our bond (gold and dollar) market seems to reflect (which investors
selling safe haven assets would imply), why aren’t the stock boys equally
convinced? Whatever the scenario, I worried about the
reason(s) stock prices are flat but bond prices are down double digits.
GLD declined
again [no safe haven here either], remaining below its 100 day moving average
and the neck line of the head and shoulders pattern. Oil was down, ending below the upper boundary
of its short term trading range. The dollar also sank and remained below its
100 day moving average and within a very short term downtrend and a short term
trading range.
Bottom line: the
Averages continued to drift within a very tight range marked by their former
highs and their 100 day moving averages. However, the Treasury bond, gold and
dollar markets are trading near their 2015 lows. I don’t have a clear explanation that
encompasses a reason for this pin action---which is why it makes me
nervous. However, as long as the indices
trade within uptrends across all timeframes, there is no point in getting to
beared up for technical reasons.
The
Chinese market continues to get hammered.
As I noted last week, there is not a lot correlation between our Averages
and their Chinese counterparts. However,
we need to be aware of what is going on and watchful for any spillover effects
(medium):
A
short term limit to S&P advance? (medium):
A
crash risk index for the Market (medium and interesting):
Fundamental
Headlines
Yesterday’s
US economic numbers were mixed: weekly jobless claims and May personal income and
spending came in above estimates while the June Markit Flash services PMI and
the June Kansas City manufacturing index were lower than anticipated. However, the personal income and spending
stats were certainly the most important.
So I have to score the day as a plus for the economy, which in turn
makes the aggregate data releases this week the best so far in the year. That isn’t enough to rethink the recent
downwardly revised forecast, but it does help take recession off the table.
Overseas,
(1) South Korea lowered its 2015 economic growth forecast which hardly helps
the global outlook and (2) China eased monetary policy again which only adds to
the excessive level of financial liquidity and the potential problems it spawns
(see above).
***overnight,
May Japanese inflation barely budged off extremely low levels, but household
spending eked out a small gain for the first time in a year.
But,
of course, investors seemingly remained focused on the Greek bail out or the
lack thereof; and the news flow took a still more negative turn. There was no agreement in the Wednesday
meeting, the Thursday and Friday meetings were cancelled, Merkel said that she
wanted an agreement by Monday and ECB said that it was ending liquidity
injections in the Greek banks. That
sounds like a snoot full of bad news---and it is, if they all mean what they
say. The question is will the eurocrats
pull another rabbit out of its hat and kick the Greek solvency problem down
road or have Greek’s finances reached the point of no return?
The
latest on Greece as of the last night (medium):
Behind
the scene in Germany (medium):
ECB
threatens to end liquidity injections into Greek banking system (medium):
***overnight,
it looks like we have another ‘take it or leave it’ offer to the Greeks from
the Troika. At this time, there is no
details of the offer (medium):
http://www.zerohedge.com/news/2015-06-26/troika-offers-greece-third-bailout-program-prepares-emergency-plan-if-no-deal
http://www.zerohedge.com/news/2015-06-26/troika-offers-greece-third-bailout-program-prepares-emergency-plan-if-no-deal
Bottom line: yesterday’s
economic stats cap off the best week for this dataflow this year (all that is
left is today’s consumer sentiment report)---and we only had to wait six
months. That backs up our forecast.
On the other
hand, the Greek financial dilemma remains a problem that only seemed to get
worse yesterday. The US market’s fate seems to be tied to the Greek deal; although, I am not sure what kind of upside there is since
our Models incorporate a ‘muddling through’ assumption for the global
economy. That said, I am not sure what
the downside is either. However, the
difference is that the downside (which as aside, I have no idea how to
quantify) whatever it is, is not in either our Economic or Valuation Models.
Economics
This Week’s Data
The
June Markit flash services PMI was reported at 54.8 versus expectations of
56.6.
The
June Kansas City Fed manufacturing in came in at -9 versus the May reading of
-12.
Other
Here
is the optimist’s view of Fed policy. It
focuses mainly on why and how the Fed pursued QEInfinity. However, the key going forward is how it
unwinds it. In the last three paragraphs
the author assumes that the Fed will execute a perfectly controlled exit,
which, as I have pointed out more times than you probably cared to hear, the
Fed has never, ever been able to do successfully (medium);
Politics
Domestic
More on the
passage of the ‘fast track’ trade bill (medium):
The Supreme
Court upheld Obamacare. Justice Scalia’s
dissenting opinion (medium):
International
Is
Portugal the next problem? (medium):
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