The Morning Call
7/22/15
The
Market
Technical
The indices
(DJIA 17919, S&P 2119) were down yesterday, seemingly on disappointing earnings
reports from two Market biggies (IBM, UTX)---which we got more of after the
Market close (APPL, MSFT, CMG, YHOO, GPRO). The Dow traded back below its 100 day moving average,
though the S&P still has a ways to go to confirm that break. So for now, a challenge of the all-time highs
(18295/2135) has been postponed. I don’t
think that means that there won’t be one; but clearly the Averages are at a
level where upside progress has been a problem.
Longer term, the
indices are within their uptrends across all timeframes: short term (17611-20535,
2080-3059), intermediate term (17827-23968, 1869-2635) and long term
(5369-19175, 797-2145).
Volume rose; breadth
remained mixed. The VIX (12.2) fell; a
little unusual for a down Market day---a mirror image on Monday’s action. I
continue to believe that a price below 12.0 represents good value as portfolio
insurance.
The long
Treasury was up, but closed below its 100 day moving average and within its
short term downtrend.
Beware high
yield ETF’s (medium):
Update on the
muni bond market (short):
GLD fell again. It ended below its 100 day moving average and
within short and long term trading ranges and an intermediate term downtrend.
Gold warns again
(medium):
Oil was up, but finished
below its 100 day moving average and near the lower boundary of its short term
trading range. The dollar took a
breather yesterday, ending above its 100 day moving average and within short
and intermediate term trading ranges.
Bottom line: those
all-time highs remain an elusive target. As long as that remains the case, the
thesis that the Market is in a topping formation continues to carry
weight---and the more times that stocks can’t muster a challenge, the stronger
the argument. I am not suggesting that a
top has been put in; but it is looking more likely. As always, follow through is key.
Fundamental
Headlines
Yesterday
was another slow day for economic reports.
In the US, month to date retail chain store sales slowed from the prior
week. Overseas, German June PPI fell
0.1%, in line, but hardly an indication of economic strength.
***overnight,
Chinese business sentiment plunged 14%, falling into negative territory;
Italian retail sales declined.
The
main headline was corporate earnings reports.
IBM’s and United Technologies’ were below estimates and that was
followed by more weaker than expected releases after the Market close. The question is, are the above numbers just a
brief aberration or are we starting to get the disappointments that the bears
have been looking for the last four quarters?
I have been wrong too often in the last year to venture a guess at this
point. But clearly, this something to
which we need to pay attention.
There
was one news item out of Greece: the government submitted to parliament
legislation enacting terms demanded by the Troika. The vote on the measure is before parliament
today.
In addition, a
steady stream of negative narratives continues:
The
problem of corruption in Greece (medium):
Citi
on the need for a Greek debt ‘haircut’ (medium):
Bottom line: earnings
reports held center stage yesterday and the viewing was not that
inspiring. This is the first really
lousy day in this earnings season and it may be the worst in the last couple of
quarters. However, it was one day of
stats, certainly nothing to get beared up over.
There will need to be a number of days like that before anything like a
trend appears.
That said, this
is the kind of news that could get investors thinking about valuations---which
in my opinion are stretched. Hence, the
risk/reward equation at the moment is heavily weighed to the downside.
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.
David
Stockman on valuations (medium):
Ed
Yardeni on valuations (short):
Economics
This Week’s Data
Month
to date retail chain store sales slowed from the prior week.
Weekly
mortgage applications rose 0.1% while purchase applications were up 1.0%.
Other
Update
on big four economic indicators (and industrial production):
Politics
Domestic
International War Against Radical
Islam
The
latest from Iran (short):
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