The Morning Call
6/23/15
The
Market
Technical
The Averages
(DJIA 18119, S&P 2122) rose on the day, apparently happy with the possibility
of a Greek bail out deal. Both closed
above their 100 day moving averages, but still couldn’t challenge their prior
highs (18295, 2135). Since the momentum
has been to the upside over the past seven trading days, my focus remains on
those aforementioned prior highs and the upper boundaries of their long term
uptrends. Not because I believe that
they will necessarily give way to the bulls; but more for a sign of the
strength of their resistance. As you
know, I don’t believe that the indices will successfully challenge the upper
boundaries of their long term uptrends---and if they do, it will not be
meaningful.
Longer term, the
Averages remained well within their uptrends across all timeframes: short term
(17431-20237, 2049-3028), intermediate term (17598-23740, 1847-2615) and long
term (5369-19175, 797-2138).
Volume was quite
low; breadth improved. The VIX was off
9%, finishing below its 100 day moving average and within a very short term downtrend
and a short term trading range. While on the surface this move is
positive for stocks, the VIX is again nearing a level (12) at which it offers
value as portfolio insurance.
The long
Treasury was smashed again (-2.0%), ending below its 100 day moving average and
the upper boundaries of very short term and short term downtrends.
GLD was down,
bouncing down off its 100 day moving average and below the neck line of the
head and shoulders pattern. Oil was up slightly,
but still closed below the upper boundary of its short term trading range. The
dollar was up fractionally but remained below its 100 day moving average and within
a very short term downtrend and a short term trading range.
Bottom line: investors
seemed to find hope in the latest news out of Greece; however, they were unable
to challenge either the former highs of the Averages or the upper boundaries of
their long term uptrends. I posed the
question last week ‘how much juice do the bulls have left and how much further
to the upside they can move stock prices?’
So far the answer is that they don’t---but to be fair, the final Greek
settlement is not likely in prices at the moment.
Stock and bond
prices continue to trade inversely; something I noted last week and speculated
that the Fed may be losing control of the long end of the bond Market. The longer this goes on, especially in the absence
of a noticeably improving economy, the more likely that there is some spill
over into the equities’ market.
Fundamental
Headlines
Yesterday’s
economic stats continued in the ‘mixed’ vein: the May Chicago national activity
index was below expectations (the initial release showed a .7% decline which
was later corrected to -.17%) while May existing home sales were above estimates. So the mixed pattern of data that has
developed over the last three week appears to be continuing.
***overnight,
the EU composite flash PMI was the strongest in four years while the Chinese
reading was the fourth straight down month.
No
international data though the overseas news appeared to be in forefront of
investors’ minds---in the form of headlines suggesting that a Greek bail out
deal is close. Here is an analysis of
what details that have been leaked from a pessimist that a deal could be
struck. If she is encouraged, then we
all should be. (medium):
More
analysis (medium):
***overnight,
problems on the home front:
Certainly,
this is a day to day situation; so the above comment is not meant to imply a
deal is done. But clearly the odds are
better than they were last Friday.
Bottom line: the
probability of a Greek bail out shot up over the weekend. The good news is that an agreement would hopefully
remove all those untended consequences of a Grexit from the investment outlook. The bad news is that (1) some segment of the
Greek electorate will likely not be happy and that in itself could lead to some
concerning headlines and (2) taking a Grexit off the table removes one of the
Fed’s excuses for not raising rates sooner rather than later (note the pin
action in the bond market yesterday).
Even
if the EU and Greece make a deal, even if the Fed stays looser, longer than the
most optimistic could hope for, stocks are generously valued by most
measures. At current prices, I don’t see
the point in buying a stock no matter how much you like it, I don’t see the
point of holding on to the security of a company that is failing to meet
expectations and I don’t see the point of not owning cash (our Portfolios are
currently 50-55% in cash).
How
active managers are beating the Market (short):
Stock
valuation and GAAP earnings (short):
The
latest from John Hussman (medium):
Economics
This Week’s Data
May
existing home sales rose 5.0% versus expectations of up 4.1%.
May
durable goods orders fell 1.8% versus estimates of a 0.6% decline; ex transportation,
the figure was +0.5%, in line.
Other
Why
small booms cause big busts (medium):
Politics
Domestic
International
Ukrainian
president admits overthrow was a coup (medium):
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