The Morning Call
4/29/16
The
Market
Technical
The indices
(DJIA 17830, S&P 2075) see sawed back and forth during the day and then
died in the last hour. Volume fell and breadth weakened. The VIX jumped 11%, adding weight to the
notion that it has made a double bottom.
The Dow closed
[a] above its 100 day moving average, now support, [b] above its 200 day moving
average, now support, [c] within a short term uptrend {17651-18605}, [c] in an
intermediate term trading range {15842-18295} and [d] in a long term uptrend {5541-19413}.
The S&P
finished [a] above its 100 day moving average, now support, [b] above its 200
day moving average, now support, [c] below the lower boundary of its short term
uptrend {2099-2201}; if it remains there through the close next Monday, it will
reset to a trading range, [d] in an intermediate term trading range {1867-2134}
and [e] in a long term uptrend {830-2218}.
The long
Treasury was up again on good volume again.
It has now bounced off of its 100 day moving and double bounced off of a
key Fibonacci level with some authority.
However, it is still in a trading range dating back to early
February. So I am not sure that there is
much information value until TLT breaks out of that range.
What the output
gap means to bond prices (medium):
GLD was up 2%,
finishing within in a short term uptrend, above its 100 day moving average and
a key Fibonacci level and nearing its March high. If it successfully challenges that high, the
upper boundary of its intermediate term trading range becomes the next
objective.
Bottom
line: the ‘do nothing’ BOJ meeting caused
an early sell off, then stocks spent much of the day recovering---until Carl
Icahn said (1) he sold his Apple stock and (2) a day of reckoning was coming in
stocks. That resulted in the late day
sell off. As I note above, the decline pushed
the S&P through the lower boundary of its short term uptrend. That is the first technical indication that
the current rally could be over.
However, under our time and distance discipline, that trend break won’t
be confirmed until next Monday. Until
that happens, I am holding on to my current assumptions: stocks are in heavily
congested territory, so the upward progress will be more plodding but I expect
them to challenge their all-time highs and fail.
Fundamental
Headlines
The
US economic data couldn’t handle Wednesday’s good fortune returning to a more
negative tone: first quarter GDP was below expectations (primary indicator), weekly
jobless claims rose but less than anticipated and the April Kansas City Fed
manufacturing index was down but not as much as in March.
International
stats were the best in memory: March Chinese industrial profits rose 10%+, April
EU consumer confidence was up slightly and April German unemployment fell. Not to rain on the global data parade, but
after a near continues chain of poor numbers over an extended period of time,
one (now two) day is hardly a sign of any change in trend. Still any turnaround starts with the first
day’s improvement. So the door is open to the possibility of a shift; but that
is it.
***overnight,
Italian unemployment was below forecasts, while first quarter Italian, French
and EU GDP were above, first quarter EU inflation was below estimates.
The
big economic news of the day was the surprise decision by the Bank of Japan to
take no further steps to either increase security purchases or move deeper into
negative rate territory. I can think of
a couple of reasons for this inaction: (1) the Chinese threat at the G20
meeting to stop the currency devaluations, (2) the realization that none of its
QE/negative interest rate measures have worked, so why do more. We all should be so lucky if it was the
latter. How thankful I would be if this is
a sign that we might be seeing the beginning of the end of central bank
overreach. Of course, we don’t yet have
a clear idea of the BOJ’s rationale.
Hopefully, that comes soon.
Bottom line: initially,
the BOJ inaction looked like quite a blow to the QE forever crowd; but then
stocks began a decent recovery almost immediately---which I have to say was
confusing to me. It maybe that the
underlying price momentum of the Market is so strong that this bad news simply
wasn’t enough to discourage the buyers. Then
the aforementioned Icahn statement disrupted the recovery in prices, making it
more difficult to measure the full impact of the BOJ move in isolation. I am sure we will know more soon.
All this said,
as a standalone (in)action, the fact that we don’t have more QE today than
yesterday is a positive.
My
thought for the day: Staying on the
subject of Buy and Sell Disciplines: it is important to remember that no
decision is irrevocable. For instance,
if you Buy a stock and it declines, hitting your Stop Loss Price, the concern
is inevitably ‘what if I sell and the stock goes back up?’ (i.e. I am wrong
twice) So, what if does? Remember that your portfolio doesn’t know
what it doesn’t own---if you sell and the stock goes up, your portfolio doesn’t
know and your performance won’t get docked for the subsequent rise. In short, you should be agnostic to what
happens after you sell because your portfolio sure is. That said, even if that Stop proves to be
wrong, you can always buy it back later.
If the upside hasn’t changed, whatever the opportunity cost (the
difference between the Stop price and the price you Buy it back) is, it is
likely to be negligible in the scheme of things. On the other hand, if the stock continues
down, you will have saved your portfolio the greatest sin---a big loss.
More
on profit margins (short):
Earnings
‘beats’ and yesterday’s GDP number (medium):
And
even worse, is the SEC about to crack down on the free for all in non GAAP
accounting? (medium and a must read):
Investing for Survival
The
role of randomness in portfolio performance.
News on Stocks in Our Portfolios
Revenue of $14.42B
(+3.1% Y/Y) misses by $150M.
Revenue of $2.45B
(+9.9% Y/Y) beats by $70M.
Johnson & Johnson (NYSE:JNJ) declares $0.80/share quarterly dividend, 6.7%
increase from prior dividend of
$0.75.
AmeriGas Partners (NYSE:APU) declares $0.94/share
quarterly dividend, 2.2% increase from prior dividend of $0.92.
Revenue of $2.84B
(flat Y/Y) beats by $10M
Revenue of $2.51B
(-9.1% Y/Y) beats by $20M
Revenue of $48.71B
(-28.0% Y/Y) beats by $3.29B
Economics
This Week’s Data
The April Kansas
City Fed manufacturing index was reported at -4. Still it was not as bad as the -6 in March.
March personal income
rose 0.4% versus expectations of up 0.3%; February was revised from up 0.2% to
up 0.1%---so a wash for the two months.
Personal spending was up 0.1% versus estimates of up 0.2%; February
revision was unchanged.
Other
Politics
Domestic
International War Against Radical
Islam
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