The Morning Call
7/8/15
The
Market
Technical
In a very
volatile day, the indices (DJIA 17776, S&P 2081) ended to the upside. Both finished below its 100 day moving
average. The Dow closed back above the
lower boundary of its intermediate term uptrend, voiding Monday’s break. The S&P closed above the lower boundary
of its short term uptrend.
The last time
utilities and transports lagged (short):
Yesterday’s
turnaround should lead to positive month (short):
Longer term, the
Averages are in uptrends across all timeframes: short term (17505-20311, 2064-3043),
intermediate term (17726-23868, 1858-2626) and long term (5369-19175, 797-2138).
Volume increased
slightly; breadth was mixed. The VIX fell
5%, but still ended above its 100 day moving average and within a short term
trading range and an intermediate term downtrend.
Update on
Bloomberg’s smart money flow (short):
The long
Treasury rose again, apparently still attracting the ‘safe haven’ trade. However, it remained below its 100 day moving
average and the upper boundary of its short term downtrend. On the other hand, it closed above the upper boundary
of its very short term downtrend for a second day, negating that trend.
GLD fell
substantially---again not trading like a safe haven. It finished 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 rose slightly, but, like gold, didn’t demonstrate any characteristics of
a safe haven. Oil was up fractionally
ending below its 100 day moving average and the upper boundary of its short term
trading range.
Bottom line: the
Averages staged a dramatic intraday reversal, trading down big during the day
but rallying to finish up. It would seem
that investors remain sanguine about the Greek bail out dilemma as well as any
potential fallout from the plunging Chinese stock market. So the bulls still have some fight in them.
That said, it
may have been nothing more than a bounce off an oversold condition. Plus, the indices remain below their 100 day
moving averages (which now constitute resistance) and the upper boundary of
very short term downtrends. So stocks
have some work to do before they stage another assault on the upper boundaries
of their long term uptrends.
Fundamental
Headlines
Yesterday’s
US economic data was upbeat but it was comprised of two secondary indicators:
the May US trade deficit was slightly below estimates and month to date retail
chain store sales were higher than the prior week.
***overnight,
a Puerto Rican official said that the island will not pursue a reduction in
principal on its outstanding debt, but rather will renegotiate the terms of its
debt (lower interest rates and extend maturities).
Overseas,
the UK released two conflicting measures of its manufacturing sector: the manufacturing
PMI was below expectations while industrial production was above.
Holding
center stage:
***overnight,
Tsipras appears to have folded---but you never know with these guys (medium):
(2)
the Chinese stock market continues to get whacked with
the government stumbling all over itself to stem losses
Going so far as to ban certain language discussing the risk (medium):
Making
sense of the Chinese market, or not. (medium):
China or Greece driving the market?
(short):
***overnight,
Chinese stocks plunge again, followed by agricultural and industrial
commodities. Over one half of all listed
companies have now suspended trading in their share (medium):
Bottom line: Tsipras
promise to have a better deal shortly if the Greeks gave him a NO vote didn’t
quite work out that way. In fact, the
Troika once again gave him a raspberry on his Tuesday proposal and (another)
last chance to get his act together and present an acceptable plan later this
week which would then be considered on Sunday.
So this Chinese water torture test continues unabated; and who knows
how long these guys will keep dicking around until some final decision is
made. So my bottom
line here hasn’t changed: I don’t know how this ends and I don’t know what it
means for the markets if it ends badly; but I do believe that there will be
unintended consequences; and since those are by definition unknowable, this
situation demands some caution.
Which we now apparently have after last night’s stunner; we now wait to
see if Tsipras is really serious this time.
Conditions in
the Chinese market didn’t improve despite some pretty desperate measures. To date there has been no direct spill over
into our market, though there are worries that a Chinese bear market could
impact its highly leveraged financial system and consumer sentiment (it seems
much of this latest rally is being driven by retail speculation)---and that
could generate negative repercussions around the globe. So far none of this has
seriously diminished US investors’ positive psychology; and until it does, the gap
between current prices and historical valuation metrics will remain.
Another factor
that could influence ‘goldilocks expectations is second quarter earnings season
which starts today. Thus far in the
current recovery, profits have managed to beat estimated, even though they have
regularly have been downwardly revised numbers.
That hasn’t bothered investors either.
I continue to believe
that some incident or number ultimately will result in an ‘emperor’s new
clothes’ moment that leads to the recognition of the aforementioned gap.
Investing for Survival
Why
our Stop Loss and Sell Half Discipline are so important (short):
News on Stocks in Our Portfolios
Economics
This Week’s Data
Month
to date retail chain store sales rose again.
Weekly
mortgage applications were up 4.6% while purchase applications were up 7.0%.
Other
The
reach for yield (medium and today’s must read):
Politics
Domestic
More of your
government at work (short):
International
The
rise of the failed state and why that is a problem (medium):
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