The Morning Call
7/24/15
The
Market
Technical
The indices
(DJIA 17731, S&P 2102) were down again yesterday. The Dow traded below its 100 day moving average
(remember the importance of this trend line as support for the last 18 months) for
the third day; though the S&P is still above its comparable level. If the Dow closes below its 100 day moving
average today, the MA will change from support to resistance for the second
time in three weeks.
The DJIA also
ended below the lower boundary of its intermediate term uptrend (remember the
slope of the intermediate term uptrend is somewhat steeper than the short term
uptrend) for the fourth time in three weeks; although it never confirmed the
break in any of the prior three challenges.
The S&P is still 30 points away from the lower boundary of its short
term uptrend. The short term question at
the moment is, how will the Averages resolve these divergences?
Longer term, the indices are, for the moment, within
their uptrends across all timeframes: short term (17638-20562, 2083-3062),
intermediate term (17856-23995, 1869-2635) and long term (5369-19175,
797-2145).
Volume fell; breadth
turned negative. The VIX (12.6) pin
action was up, reverting to more normal behavior.
The long
Treasury was up strong, but still closed below its 100 day moving average and
within its short term downtrend.
High yield
bonds: another divergence (medium):
GLD fell for the
seventh day in a row. It ended below its
100 day moving average and within 5% of the lower boundary of its long term
downtrend.
Oil was down, finishing
below its 100 day moving average and on the lower boundaries of its short and
intermediate term trading ranges. If it
remains below this level through next Monday, the short term trend will re-set
to down; if it stay there through the close on Tuesday, the intermediate term
will re-set to down. The dollar fell,
ending above but very near its 100 day moving average and within short and
intermediate term trading ranges.
Bottom line: the
Averages are back at prices at which support levels are being challenged. A break of the indices short and intermediate
uptrends would clearly support the notion that this Market has topped. However, that is getting way ahead of events.
It will take some serious whackage to successfully
challenge those trends. So for now, best
to stay patient and focus just on the follow through of those trends that are already
being threatened.
Fundamental
Headlines
The
pace of release of US economic picked up a bit yesterday: weekly jobless claims
fell much more than expected, the June Chicago National Activity Index was well
ahead of estimates as were the June leading economic indicators and the July
Kansas City Fed manufacturing index continued to decline, just not as much as
anticipated. In short, the numbers
pretty much assured another upbeat week for economic stats.
Another
troubling sign (short):
***overnight,
the major rating agencies downgraded Puerto Rico and UBS announced that it
would cease accepting PR bonds as collateral.
Overseas,
the results were more mixed---up retail sales in Canada versus down in Great
Britain.
***overnight,
the July Markit flash manufacturing PMI in both the EU and China were below
expectations.
Other
headlines included a great day (in the aftermarket) for corporate earnings as
AMZN (which was up 18% in after-hours trading and will probably lead a market
rally today, at least, early on), ATT, CSCO, SBUX and V all posted better than
consensus results.
In
hedge fund manager, Ray Dalio’s, quarterly investor report, he expressed
concern about his economic outlook for China. As a long time China bull/investor, this
clearly brought back into focus recent worries about that country’s economy and
Market and their possible impact on the global economy/Market.
The reason is
simple: as you know, one of the troubling aspects about investing in China is the
lower level of confidence we have in the veracity of the data, economic or
otherwise, published by the government because its tendency to make the reported
stats reflect its own narrative. So when
a sophisticated and well respected analyst with significantly better raw data
retrieval capabilities and who is a long time bull on China suddenly changes
his tune, a lot more doubt is created than a switch in opinion of an equally
sophisticated, well respected analyst on the US where everyone has roughly
equal access to the data and therefore has a lot more confidence in their own
analysis.
Bottom line: yesterday’s
US economic data was really good by recent standards although I need a lot more
of those kind numbers before I would consider altering our outlook.
In addition, if yesterday’s
aforementioned after hours profit reports are an indication that this earnings’
season is taking a turn for the better, then it may provide investors with yet
another opportunity to ignore the fact that overall corporate earnings increases
have over the last couple of years become more a function of accounting than
physical growth. If not, they may still
ignore it; it will just require more denial of the cognitive dissonance.
On the other
hand, Ray Dalio’s comments reinforce my worry that China’s economic problems
and their impact on the global economy can’t be as easily dismissed as investors
seem to have done with its manipulation of it stock market. While the Chinese government may have been
able to muscle the stock market and may have the ability to manipulate the
reported data, it ultimately can’t hide what is actually transpiring in the economy
because it is not a closed system.
Eventually, whatever is occurring internally will be felt externally;
and if it is a slowdown in growth, its impact will be seen/felt in the global
numbers irrespective of what the Chinese say.
I continue to 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.
More
on valuation (medium):
Economics
This Week’s Data
June
leading economic indicators rose 0.6% versus expectations of up 0.2%.
The
July Kansas City Fed manufacturing index came in at -.7 versus June’s release
of -.9.
Other
Commercial
real estate is booming (short):
Politics
Domestic
International War Against Radical Islam
Turkey
getting more deeply involved in Syria (medium):
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