The Morning Call
7/16/15
The
Market
Technical
The indices
(DJIA 18050, S&P 2107) basically flat lined yesterday. Both closed above their 100 day moving
average. If they remain there by the
close today, they will change this moving average from resistance to
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,
2073-3052), intermediate term (17780-23912, 1861-2629) and long term
(5369-19175, 797-2145).
Volume was flat;
breadth negative. The VIX (13.2) was
down, ending below its 100 day moving average.
A price below 13.0 represents value as portfolio insurance.
The long
Treasury was up 1%, likely reflecting the political turmoil (read riots) in
Greece and finished below its 100 day moving average and the upper boundary of
its short term downtrend.
GLD declined
(again demonstrating that it is not being viewed as a safe haven), closing
below its 100 day moving average and the neckline of the head and shoulders
formation and very near the lower boundary of its intermediate term trading
range.
The dollar was
up, like TLT, benefiting from the Greek unrest.
It finished above its 100 day moving average (a close above it on Friday
will convert it from resistance to support) and above the upper boundary of its
very short term downtrend (a close above it today will negate the trend). Oil declined 3% (apparently Tuesday’s buyers
sobered up), and ended below its 100 day moving average and near the lower
boundary of its short term trading range.
Bottom line: in
the face of rioting in Greece and a plunge in Chinese stocks, I thought
yesterday’s pin action showed remarkable strength. Whether this was a function of another
investor swoon over Yellen or a result of investors having decided that neither
of the aforementioned are problems anymore is a question that should be
answered in the coming days. Low volume
and poor breadth remain worrisome. But
price is truth and price continues to suggest an assault by the Averages on their
all-time highs (18295/2135) and the upper boundaries of their long term
uptrends---the latter of which I believe they will fail to challenge
successfully.
Is
the correction over (medium)?
Fundamental
Headlines
Yesterday’s
economic dataflow improved from Tuesday’s.
June PPI (as an aside, I am scoring any increase in inflation as a plus
in as much as that is a Fed goal for returning to normalized monetary policy),
the NY Fed manufacturing index and June industrial production (another of the
big four indicators) were ahead of estimates; while weekly mortgage and
purchase applications were disappointing.
Update
on big four economic indicators:
In
addition, there were two news items from the Fed: (1) Yellen’s congressional
testimony was pretty much in line with the present Fed narrative [the economy
is improving, but Greece and China worry us, so barring a disaster we will
likely raise rates this year but it will be data dependent] and (2) the latest
Fed Beige Book was released depicting a slightly less upbeat picture of the
economy than the prior report.
Finally,
the White House budget office lowered its 2015 GDP growth and inflations
estimates.
***overnight,
senate introduced a bill to allow Puerto Rican public entities to declare bankruptcy.
None
of this gives reason for re-thinking our forecast. Indeed, the better numbers provide a welcome
offset to Tuesday’s lousy results.
Overseas,
the Bank of Japan left interest rates unchanged but at the same time lowered
its 2015 GDP and inflation outlook
(their super terrific, giant economy sized QE apparently still not
working); and China reported second quarter GDP and June retail sales and
industrial production in line with their (optimistic) projections.
***overnight,
ECB leaves rates unchanged.
China defends
the veracity of its statistical measures (medium):
***overnight,
Chinese debt to GDP was reported at 207%.
Greece
continued to claim center stage as the parliament debates the initial required
approval for its surrender to the Troika (which most observers expect), amidst
rioting in the streets.
The
eurozone fault lines (medium):
Naked
Capitalism still thinks that the odds favor a Grexit (medium):
***overnight,
Greek parliament approves bail out agreement.
EU finance ministers meet to begin talks on short term funding for
Greece and agreed in principle to fund a loan that would allow Greece to repay
IMF and ECB.
Bottom
line: with the Averages down
fractionally, investors clearly continued sanguine despite bad news from Greece
and China. Still neither situation has
been resolved. Somewhat better economic
news along with the first day of Yellen’s Humphrey Hawkins testimony may have
been a balm to investor worries. In
addition, any thought of Fed tightening is irrelevant until there is a
conclusion to Greece and China. On the
other hand, the US economy remains in a below average growth pattern which I
believe is getting even more below average---witness the latest Beige Book and
revisions from the White House budget office.
My point here is
not that we are on the precipice of disaster.
My point is that in an economy that is growing sluggishly at best and
that could potentially be impacted by foreign events, even if just
fractionally, assuming higher stock valuations from already lofty heights is
more a function of hope than analysis.
As a result, I
continue to believe that any price strength should be used to Sell stocks that
have reached your profit objective or whose underlying company no longer meets
your standards for financial strength.
Economics
This Week’s Data
June
industrial production rose 0.3% versus expectations of up 0.2%; capacity
utilization came in at 78.4 versus estimates of 78.2.
Yellen
made the first of two appearances in congress this week. There was little new in her comment, the
summary of which:
In
addition, the latest Fed Beige Book report was released yesterday. It was generally slightly less upbeat than
its immediate predecessor.
Weekly
jobless claims fell 15,000, in line.
Other
The
best possible thing for low skilled workers (short):
Small
(business) is beautiful (short):
Politics
Domestic
International War Against Radical
Islam
An
analyst in favor of the Iran nuke deal (medium):
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