The Morning Call
6/16/15
The
Market
Technical
The Averages
(DJIA 17791, S&P 2048) fell yesterday, finishing below their former
all-time highs, their 100 day moving averages (which have provided strong
support for the indices for over the last two years.) and the upper boundaries
of their very short term downtrends. My
attention right now is how the indices trade around those 100 day moving
averages. An inability to recover above
these support levels would be another negative technical divergence.
Longer term, the
Averages remained well within their uptrends across all timeframes: short term
(17356-20161, 2045-3024), intermediate term (17551-23693, 1842-2610) and long
term (5369-19175, 797-2138).
Volume rose
slightly. Breadth was negative; of note,
the flow of funds indicator broke an uptrend going back to May 2014. The VIX was up 11%, closing above its 100 day
moving average and within a very short term downtrend and a short term trading
range.
More divergences
(short):
The long
Treasury was up fractionally, ending below its 100 day moving average and the
upper boundaries of very short term and short term downtrends.
China: the
source of the recent selling in Treasuries (medium):
GLD drifted
higher---continuing to do nothing and ending below its 100 day moving average
and the neck line of the head and shoulders pattern. Oil was a bit lower, closing below the upper
boundary of its short term trading range. The dollar also declined, closing
below its 100 day moving average. Last
week, it broke below the lower boundary of a developing pennant formation,
resetting to a very short term downtrend.
Bottom line: the
price action in the indices seems to be starting to reflect the divergences
that have been emerging the last couple of months. How they handle their 100 day moving averages
will likely be an important factor in whether the Averages get in sync with or
continue to diverge from the numerous oft mentioned internal market indicators.
The long bond
continues to act poorly; the dollar looks like it could be rolling over; and gold
and oil have been trading in tight, unexciting ranges.
Fundamental
Headlines
The
US economic news flow this week got off a lousy start: the June NY Fed
manufacturing index was well below expectations while May industrial production
was negative. The NAHB confidence index
was a plus. But given that industrial
production is a primary indicator, yesterday’s data was solidly downbeat. That said, we have had two promising weeks of
stats in a row; so there is no reason to get beared up.
Update
on big four economic indicators (medium):
There
was no international economic data; though the big, fat Greek drama continues
to command center stage. At the moment,
nothing seems to be going as hoped, as the latest round in bail out talks broke
down (medium):
Amid
rumors of capital controls (medium):
More (medium):
I
actually thought that comments from the Troika on the handling of the Greek
pension system (one of, if not the biggest sticking point in the negotiations)
indicated some willingness to compromise---though clearly the headlines don’t
bear that out. It seems the Greeks are
on their third chamber in this ultimate game of Russian roulette. Which means that there is still the chance
of a successful conclusion to this clusterf**k; but clearly the odds are
shrinking.
The
other item preoccupying investors this week is the Tuesday/Wednesday FOMC
meeting. Consensus appears to be that
rates will remain unchanged. The
disagreements are centered around the language in the Fed statement and in
Yellen’s post meeting news conference---hence Wednesday could be exciting
(volatile).
***overnight,
German investor confidence, EU car sales and Indian exports all disappointed.
Bottom line: yesterday’s
economic stats notwithstanding, the data is showing signs of some stabilization. That clearly is a plus and hopefully we will
see more of the same. A return to the
first four months of steadily deteriorating numbers would open the potential
for a worst case scenario---a recession when the Fed has no policy ammo.
The Greek
bailout endgame draws ever nearer. However,
I think that no matter badly this may end, the eurocrats will manage to extend
the uncertainty well beyond boundary of rational expectations. That doesn’t mean that it will necessarily end
in failure; but it is likely to be a Chinese water torture test whatever
happens. What worries me is that if a
Grexit occurs, I don’t think the pain of the resulting consequences is being
properly discounted.
Finally, the consensus
is that the Fed will leave rates unchanged at its meeting this week. A rate hike would be a surprise.
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
latest from John Hussman (medium):
Economics
This Week’s Data
May
industrial production fell 0.2% versus expectations of a 0.2% increase;
capacity utilization came in at 78.1 versus estimates of 78.4.
The June National
Association of Homebuilders confidence index was reported at 59.0 versus
forecasts of 56.0
Month to date retail
chain store sales slipped again last week.
May
housing starts fell 11% versus consensus of down 4%; however, April was revised
up. Building permits soared 12% versus
expectations of up 3%.
Other
Politics
Domestic
International War Against Radical Islam
No comments:
Post a Comment