The Morning Call
7/1/15
The
Market
Technical
The indices
(DJIA 17619, S&P 2063) rebounded weakly yesterday. Both finished below its 100 day moving
average---the Dow for the fifth day, the S&P for the second day. The Dow also
ended below its 200 day moving average for the second day. In addition, the Dow closed below the lower boundary
of its intermediate term uptrend for the second day; while the S&P moved
back above the lower boundary of its short term uptrend.
Longer term, if
the Dow remains below the lower boundary of its intermediate term up trend
through the close on Thursday, that trend will be negated. With the bounce of the S&P back above the
lower boundary of its short term uptrend, that challenge is now voided. For the moment, the uptrends are: short term
(17478-20284, 2060-3039), intermediate term (17679-23831, 1853-2621) and long
term (5369-19175, 797-2138).
Volume increased;
breadth recovered nicely. The VIX declined
3%, but remained above its 100 day moving average and the upper boundary of its
very short term downtrend for a second day, negating that trend. It is now within a short term trading range
and an intermediate term downtrend.
The long
Treasury was up down slightly, finishing below its 100 day moving average and the
upper boundary of its very short term downtrend.
GLD remained comatose,
closing below its 100 day moving average and the neckline of the head and
shoulders formation. Oil was up on huge
volume, but still ended below the upper boundary of its short term trading
range. The dollar rose, closing below
its 100 day moving average and the lower boundary of a very short term
downtrend.
Bottom line: yesterday’s
weak stock rally did little to repair the Monday’s technical damage. While the S&P did manage to recover back
above the lower boundary of its short term uptrend, neither index could regain its
100 day moving averages. The bad news is that there was no improvement in the
headlines out of Greece, Puerto Rico or China.
The good news is that all the typical ‘safe haven’ alternatives (Treasuries,
gold and the dollar) are acting like nothing has happened. The key remains follow through.
Fundamental
Headlines
Yesterday’s
US economic stats were again upbeat: month to date retail chain store sales
rose modestly, the April Case Shiller home price index was up less than
anticipated and the June consumer confidence was much stronger than
forecast. There was one
disappointment---the June Chicago PMI.
Goldman lowers its 2015
forecast for GDP, sales and earnings growth (medium):
***overnight,
Chinese manufacturing PMI was unchanged while the Japanese capital spending
number improved significantly.
But the numbers continue
to take a back seat to other developments:
(1)
the Greek bailout/Grexit remains a minute to minute
crisis. As of last night, Greece missed the
IMF payment, Tsipras rejected another offer from the Troika, the official bailout
program ended last night and the ECB meets today to decide if it will end the
liquidity injection program for the Greek banks. Despite one escalation move after another, it
appears [based on the pin action in the Treasury, gold and dollar markets] that
investors continue to believe that a solution will be reached to keep Greece in
the euro.
Investors still not panicking over Greece (short):
***overnight, Tsipras appeared to be backing down, telling the Troika
that he would accept the terms of their latest proposal with some minor
changes. A source at the ECB, responded
that those changes were not minor. In
the meantime, officials are meeting to consider the latest Greek offer.
Though Germany appears to be
taking a hard line (short):
(2)
Puerto Rico’s governor stated that the commonwealth’s
debts are not payable. There is a lot of
disagreement as to exactly how dire this crisis is---not that there isn’t a major
problem, but rather just how potentially disruptive it could be.
A report on Puerto Rico’s financial problems (short):
http://marginalrevolution.com/marginalrevolution/2015/06/the-anne-krueger-report-on-puerto-rico.html
What Puerto Rico’s debt crisis
means to muni bondholders (medium):
(3)
the volatility continues in the Chinese stock market,
most of it to the downside. The concerns here are [a] the impact that a stock
market bust could have on Chinese consumer spending at a time that the economy
is already slowing and [b] contagion that spreads to other global securities’
markets.
Among the many
problems facing the Chinese market is the lack of experience of fund managers (medium):
Bottom line: there
remain a number of problems with which the Markets must deal. Potentially, none of them may lead to
negative consequences that would threaten US economic or corporate profit
growth. On the other hand, every one of
them could. The point being that there
are a lot of unknowns out there and the recent decline in prices hardly reflect
those risks. So I wouldn’t be stepping
in front of this train, even if I thought that stocks were reasonably value
before Greece, Puerto Rico and the Chinese markets problem hit critical
mass.
As I noted
yesterday, it is far too early to be assuming that one or more of these crisis
could lead to mean reversion in equity prices.
So I am not advocating running for the hills. However, if our Portfolios hadn’t already
Sold a portion of their holdings that had hit their Sell Half Prices and/or
those companies that no longer met our quality criteria, I would have a list of
the stocks that I would Sell and the quantities I would Sell taped to my
computer screen.
The
latest from Bill Gross (must read):
Economics
This Week’s Data
Month
to date retail chain store sales rose slightly.
The
April Case Shiller home price index was up 0.3% versus expectations of up 0.8%.
The
June Chicago PMI was reported at 49.4 versus estimates of 50.6.
June
consumer confidence came in at 101.4 versus consensus of 97.4.
Weekly
mortgage applications fell 4.7% while purchase applications were down 4.0%
The
June ADP private payrolls report showed an increase in jobs by 237,000 versus
expectations of a rise of 220,000.
Other
Politics
Domestic
International War Against Radical
Islam
A
brief history of US/Iran nuclear negotiations (medium):
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