The Morning Call
7/23/15
The
Market
Technical
The indices
(DJIA 17851, S&P 2115) were down again yesterday. The Dow traded below its 100 day moving average
for the second day, though the S&P still has a ways to go to confirm that
break. The short term question at the
moment is, how will the Averages resolve this divergence?
Longer term, the indices are within their
uptrends across all timeframes: short term (17625-20549, 2080-3059),
intermediate term (17848-23988, 1869-2635) and long term (5369-19175,
797-2145).
Volume rose; breadth
remained mixed. The VIX (12.1) fell for
the second down Market day in a row. As I
noted yesterday, the VIX usually advances on days of Market weakness. So two down VIX days on two consecutive down
Market days is really unusual. It
suggests that investors are complacent and not worried about more downside.
I checked our internal
indicator last night. In a Universe of
133 stocks, 56 remain in uptrends across all timeframes, 9 have broken their
short term uptrends, 51 have broken their short and intermediate term uptrends
and 17 have broken their short, intermediate and long term uptrends. Not suggestive of a Market about to break to
all-time highs.
The long
Treasury was up again, but still closed below its 100 day moving average and
within its short term downtrend.
One year bills
near five year high (short):
More
on the lack of liquidity in the bond market (short):
More
on the risks of high yield investing (short):
GLD fell for the
sixth day in a row. It ended below its
100 day moving average and within 5% of the lower boundary of its long term
downtrend.
More
on falling commodity prices (medium):
Oil was down 4%,
finishing below its 100 day moving average and right on the lower boundary of
its short term trading range. The dollar
was up, ending above its 100 day moving average and within short and
intermediate term trading ranges.
Bottom line: the
Averages absorbed Tuesday’s poor earnings reports without any major sell off; coupled
with a declining VIX on two down Market days in a row, I see as a sign of bull
strength. On the other hand, the ever
mounting divergences are worrisome; as are the indices inability to get out of what
looks like a six month long topping formation.
My heart says that the end is getting close; my head says patience.
Fundamental
Headlines
Two
US economic stats were released yesterday: weekly mortgage and purchase
applications rose slightly while June existing home sales were quite
strong. Good news on a slow week.
However,
overseas, Chinese business sentiment dropped dramatically while May Italian
retail sales fell 0.1%.
***overnight,
June retail sales in Great Britain fell 0.2% while they rose 1.0% in Canada.
Earnings
season continued to command investor attention; and based on the last three
days, it may turn out to be the weakest in some time---the operative words
being ‘based on the last three days’. It
will take a lot more lot profit reports before we conclude that this season
will be disappointing.
The
only other news item being that the Greek parliament began debate over the
recently submitted bill to enact Troika imposed economic changes.
***overnight,
it passed.
An
optimist on Greece (medium):
http://www.project-syndicate.org/commentary/why-the-greek-deal-will-work-by-anatole-kaletsky-2015-07
Apparently,
the Greeks don’t agree (medium):
Nor
does JP Morgan (medium):
Update
on EU debt levels (short):
Bottom line: yesterday’s
earnings reports did not make great reading, though the Market decline was
pretty tame. So investors don’t seem all
that upset; and that was supported by the pin action in the VIX.
On the other
hand, if it begins to appear that the E part of P/E is starting fall short of
expectations at the same time that consensus is developing around a September Fed
rate hike, valuation models are going to start throwing up all over current
prices.
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.
Return
of the four horsemen (medium):
Economics
This Week’s Data
June
existing home sales rose 3.2% versus expectations of up 1.0%
Weekly jobless claims
fell 26,000 versus estimates of an 18,000 increase.
The
June Chicago National Activity Index came in at +0.08 versus forecasts of
-0.05.
Other
Is Caterpillar’s sales
telling us anything about the global economy?
National
Retail Federation cuts 2015 retail sales outlook (short):
Update
from China (medium):
Politics
Domestic
International War Against Radical Islam
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