The Morning Call
6/4/15
The
Market
Technical
After another
volatile day, the indices (DJIA 18067, S&P 2114) closed up modestly. Both finished above their 100 day moving
average, but below their former all-time highs.
On the very short term basis, the
Dow finished above the upper boundary of the very short term downtrend that I mentioned
yesterday; but the S&P remained below its comparable level. The pin action, in my opinion, continues to
reflect investor uncertainty.
Longer term, the
Averages remained well within their uptrends across all timeframes: short term
(17306-20111, 2032-3011), intermediate term (17458-23598, 1834-2602) and long
term (5369-19175, 797-2138).
Volume fell to
an even more anemic level while breadth was down. The VIX declined 4%, a bit more than normal
for a slightly up Market day. It is
still below its 100 day moving average and the upper boundary of its very short
term downtrend---a plus for stocks. It
is also within a short term trading range and an intermediate term downtrend.
M&A activity
at bull market highs (short):
The long
Treasury got hammered again, ending below its 100 day moving average, very near
the lower boundary of a short term downtrend and below the upper boundary of
that recently negated very short term downtrend.
GLD was down---continuing
to do nothing and ending below its 100 day moving average and the neck line of
the head and shoulders pattern. Oil fell,
closing back below the upper boundary of its short term trading
range---negating Tuesday’s break. The dollar dropped, closing below its 100 day
moving average and very near the lower boundary of the former short term
uptrend.
Bottom line: despite
intraday attempts to move in both directions, the Market remains trendless on a
very short term basis---an indication, I believe, of a lack of conviction of
both bulls and bears. They remain
hesitant to press their bets.
I still believe
that the Averages have come too far not to challenge the upper boundaries of their
long term uptrends but I also think that any further advance will be limited to
the rate of ascent of those boundaries.
While the
volatility in stocks has remained intraday, it is manifesting itself interday
in bonds, oil and the dollar. I am sure
that is contributing to investor confusion---I know it is for me. Given the current unattractive short term
risk/reward equation, it makes sense to me to do nothing.
Hedge
funds have never been longer (short):
Fundamental
Headlines
Yesterday’s
US economic data returned to the negative side: weekly mortgage and purchase applications
fell, the May Markit services PMI and the May ISM services index were both
below estimates. The May ADP private
payroll report was in line and the most recent Beige Book report contained
nothing of informational value. The one
positive was the April (yesterday I termed it as the second quarter, which was
incorrect) US trade deficit.
Overseas:
(1)
the ECB left interest rates unchanged. That was pretty much expected; however, in a
press conference following the meeting, Draghi told investors to expected
increased volatility in rates---which did not make the bond markets happy.
(2)
the OECD lowered its global growth outlook. I don’t think that a surprise since these
guys are always behind the curve. It
does support our revised lower growth forecast.
(3)
first quarter Australian GDP came in better than estimates. This
helps our ‘muddling through’ scenario.
(4)
another large Chinese company defaulted---that doesn’t. This is a little unsettling. You know, the Chinese only tell us what they
want to tell us; and if they can’t tell us anything but bad news, I have to
wonder what is going on beneath the surface,
(5)
T minus 2. No solution
to the Greek bailout negotiations; although, by definition, we are getting
closer. We almost have to have some sign
before the IMF payment is due on Saturday.
Although as I noted yesterday, gosh only knows what is going to happen. However, given the options and their consequences,
I think too sanguine a view is very risky.
A review of Greece’s options
(medium):
***overnight (medium):
Bottom line: yesterday’s
economic data took a decided turn for the worse, although this week’s stats to
date are still in the ‘mixed’ category. Whether
the improvement seen in two of the last four weeks is a sign that the economy
is stabilizing is open to question. We
need this week and subsequent ones to follow suit before we get too jiggy about
the prospects. Nonetheless, it is good
news that we at least have an open issue.
The overseas
data was not that significant save for the Chinese bankruptcy. Their stock market notwithstanding, the reported
economic conditions are just not progressing.
With an economy that big, a significant slowdown will likely induce some
heartburn.
The Greek
bailout problem is not going away.
Things have gone far enough that there is no easy solution; the pain is
now a matter of degrees. How much pain
is already being discounted is a big question; but given the seeming Pollyannaish
attitude of many investors on this issue, I suspect if any solution other than
Greece stays in the EU, gets its bailout money and guts it up on austerity
would not be well received.
Finally, since I
am always looking for things to worry about, the recent volatility in the
bonds, oil and the dollar does raise questions about the investor motivation
behind this pin action and what that could mean for stocks.
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.
Looney
Tunes market---the latest from Doug Kass (medium):
The
Fed’s confusion (medium):
What
is Janet to do? (medium):
The
corporate borrowing spree impacts future stock returns (medium):
Has
profits share on national income peaked? (short):
Economics
This Week’s Data
The
May Markit services PMI was reported at 56.2 versus expectations of 56.5.
The
May ISM services index came in at 55.5 versus estimates of 57.2.
The
latest Beige Book was released and it shows the economy growing and respondents
generally optimistic.
Weekly
jobless claims fell 8,000, in line.
First
quarter nonfarm productivity declined 3.1% versus forecasts of -2.9%; unit
labor costs rose 6.7% versus consensus of +6.0%.
Other
Politics
Domestic
International War Against Radical
Islam
More
smoke being blown up our skirts on the Iran deal (short):
Ukrainian rebels attack (short):
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