The Morning Call
6/30/15
The
Market
Technical
The indices
(DJIA 17596, S&P 2057) took it in the snoot yesterday in the aftermath of
the Greek government’s decision to call a referendum on the Troika’s bail out
proposal, the fear of Puerto Rican bond default and a crashing Chinese market. Both finished below its 100 day moving
average (the Dow ended below its 200 day moving average) and its former all-time
high. In addition, the Dow closed below
the lower boundary of its intermediate term uptrend (I know it is a bit
confusing for the lower boundary of an intermediate uptrend to be above the
lower boundary of a short term uptrend.
But it is a function of differing rates of ascension between the two
going back to mid-2011); while the S&P ended below the lower boundary of
its short term uptrend. I posed the
question in last week’s Closing Bell: do the bears now have the juice to push the
Averages below those strong support levels (100 day moving averages)? This time the answer appears to be, yes.
Longer term, we
now have two challenges going on: (1) if the S&P remains below the lower boundary
of its short term uptrend though the close on Wednesday, that trend will be
negated, (2) if the Dow remains below the lower boundary of its intermediate term
up trend through the close on Thursday, that trend will be negated. For the moment, the uptrends are: short term
(17465-20271, 2058-3037), intermediate term (17665-23807, 1851-2619) and long
term (5369-19175, 797-2138).
Volume was off
from Friday’s Russell rebalancing session; but with that exception, it was the
highest in the last 30 trading days. Breadth
was poor, but not nearly as bad as I thought that it would be. The VIX soared 35%. Closing above its 100 day
moving average and the upper boundary of its very short term downtrend. It is also nearing the upper boundary of its
intermediate term downtrend.
The long
Treasury was up 2.5%---not surprising given its role as safe haven. However, it remains below its 100 day moving
average and closed right on the upper boundary of its very short term downtrend.
Somewhat
surprisingly, GLD did almost nothing, remaining below its 100 day moving
average and the neckline of the head and shoulders formation. Oil fell, remaining below the upper boundary of
its short term trading range. The dollar
fell, closing below its 100 day moving average and the lower boundary of a very
short term downtrend.
Bottom line: the
indices are now challenging the lower boundaries of major uptrends as well as their
100 day moving averages---which have provide major support over the last two
years. The key now is whether those
trend breaks will be confirmed.
Not helping
matters are (1) Puerto Rico’s governor stated that the island’s debt was not
payable and (2) continued turmoil in Chinese markets. On the other hand, the
lack of any move up in gold prices or the dollar suggests that investors aren’t
running to the ‘safe havens’.
Finally remember
that (1) significant global events can blow technical analysis out of the tub
on a short term basis; that is one of the reasons for our time and distance
discipline and (2) the Market was way oversold on the close last night. So again, follow through is key.
Fundamental
Headlines
Yesterday’s
US economic data was weighed to the upside:
May pending home sales rose more than forecast and while the June Dallas
Fed manufacturing index was down, it was less than anticipated. Good for our forecast.
Forget
data dependent, the Fed is Market dependent (medium):
But
not particularly relevant, given the increasing uncertainty surrounding events
is Greece.
Greece
will default on IMF payment today (short):
For
an opinion, I defer to more knowledgeable experts than I:
Mohamed
El Erian on the Grexident (medium):
David
Stockman on the Grexident (medium):
In
the interest of ‘fair and balanced’ (medium):
***overnight,
the Troika offered to consider debt rescheduling/forgiveness in exchange for Tsipras
urging the Greeks to vote yes to accept the Troika’s bail out proposal.
Bottom line: Markets
got hit by a double whammy yesterday with the odds of a Grexit rising and the
prospects of Puerto Rican default coming to the fore (***overnight, the
governor confirmed that he would seek to delay some debt service). Add that to the dive in Chinese markets and
investors were faced with a pretty stomach turning cocktail. Whether or not these factors precipitate a
mean reverting move in the stock market is yet to be seen. Even if you think not, I believe that this is
not a time for heroics.
***overnight,
the Chinese market continued to plunge while the Chinese government announced
that it was considering allowing state pension plans to invest in
stocks---yeah, that is going to end well.
Economics
This Week’s Data
May
pending home sales rose 0.9% versus expectations of up 0.6%.
The
June Dallas Fred manufacturing index came in at -7.0 versus estimates of -13.5.
Other
Another
proposed regulation from the administration that is sure to help employment
(short):
Politics
Domestic
International War Against Radical
Islam
The
US and Russia now bumping heads in Syria (medium):
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