The Morning Call
7/17/15
The
Market
Technical
The indices
(DJIA 18120, S&P 2124) had a great day on the back of more good news from
Greece. Both closed above their 100 day
moving average which have now become support.
Resistance exists at their all-time highs (18295/2135) and the upper
boundaries of their long term uptrends.
Longer term, the
Averages are in uptrends across all timeframes: short term (17585-20409, 2075-3054),
intermediate term (17800-23932, 1861-2629) and long term (5369-19175,
797-2145).
Volume was up
slightly; breadth improved. The VIX (12.1)
was down 8%, ending below its 100 day moving average and near the lower boundary
of its short term trading range. It is
back in a price range that represents value as portfolio insurance. Below is
a study that suggests that volatility as insurance is best used as a trading tool
versus a long term investment.
The long
Treasury was up, finishing below its 100 day moving average and the upper
boundary of its short term downtrend.
GLD declined,
closing below its 100 day moving average and below the lower boundary of its
intermediate term trading range. If it
remains there through the close next Tuesday, the intermediate term will re-set
to a downtrend.
The dollar was
up, ending above its 100 day moving average for a second day (a close over it today
will convert it from resistance to support) and above the upper boundary of its
very short term downtrend for a second day---thereby negating that trend. Oil declined 1.5%, ending below its 100 day
moving average and near the lower boundary of its short term trading range.
Bottom line: those
100 day moving averages are now back providing the kind of support they have
given over the last couple of years. So stocks
are now in that narrow range between their moving averages and their all-time
highs/upper boundaries of their long term uptrends. As long as volume remains low and the number
of divergences continue to increase, I don’t think that the underlying momentum
in the Market is sufficient to successfully challenge the latter. On a short term risk (lower boundaries of
short term uptrends)/reward (the upper boundaries of long term uptrends) basis,
the equation is roughly balanced---being negative for the S&P but still
positive for the Dow.
Fundamental
Headlines
Yesterday’s
economic data was weighed to the upside: weekly jobless claims and the NAHB
index were pluses while the July Philly Fed index had a big shortfall.
***overnight,
Puerto Rico misses a bond interest payment
Overseas,
the only number we got was Chinese debt which has risen to 207% of GDP. In Europe, the ECB held interest rates
unchanged.
But
the biggest news was the YES vote by the Greek parliament accepting the initial
demands of the Troika, accompanied by a meeting of the EU financial ministers
to discuss the short term funding needs of Greece. After all the drama, it would seem that the
risk of a Grexit has declined with these moves.
While I don’t think this necessarily a plus for the Greeks and while
there are a lot of things that need to go right before we can safely assume
that this crisis is over, it appears that the worst case is off the table.
Where the IMF
seems to stand on Greek debt relief (medium):
Where
the Greek banks and depositors stand (medium):
***overnight,
it appears that the Greek banks will receive funding that will allow them to
re-open on Monday and the Greek government will get a loan to repay an ECB loan
due next week and the IMF loan it missed last week. In addition, the German parliament approved
negotiations for a Greek bail out.
Strangely, it
also seems that after a one (now two) day market advance, investors have
concluded that the economic/market problems in China are also a thing of the
past, despite some stiff warnings from some high powered money managers.
Bottom line: assuming
that the Greek and Chinese problems are behind us (and I am not sure that is a
good assumption), it (1) helps clarify our economic forecast on the
international economy in that our base case is for the world to ‘muddle through’
and a resolution of these potential crisis raises the probability of our
outlook meeting expectations but (2) it does nothing to [a] close the gap
between current stock prices and Fair Value as calculated by our Valuation
Model {Fair Value assumes ‘muddling through’} and [b] solve the central bank
created problem of asset mispricing and misallocation.
Lance
Roberts’ weekly observations (medium and a must read):
Economics
This Week’s Data
The
July Philadelphia Fed index came it at 5.7 versus expectations of 12.0.
The
July National Association of Homebuilders index was reported at 60 versus
estimates of 59.
July CPI was up 0.3%, in
line; ex food and energy, it was up 0.2% also in line.
June
housing starts increased 9.8% versus forecasts of an 8.5% advance.
Other
Politics
Domestic
International War Against Radical
Islam
Thoughts
on Obama’s defense of His Iran deal (medium):
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