The Morning Call
5/3/16
The
Market
Technical
The indices
(DJIA 17891, S&P 2081) bounced back after the sorry end to the prior week.
Volume increased. Breadth was mixed. While the VIX was down 7%, it continues to
act as if it has made a 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 {17716-18670}, [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 for the third day, resetting to a trading range {2039-2110}, [d] in an
intermediate term trading range {1867-2134} and [e] in a long term uptrend {830-2218}.
The long
Treasury continued to struggle, trading down to a key Fibonacci level which is
the lower boundary of a level of congestion dating back to early February.
GLD was down,
but remained above its recent high. It
also finished above its 100 day moving average and within a short term uptrend.
Bottom
line: the S&P reset to a short term
trading range while the Dow bounced off of the lower boundary of its short term
uptrend. While the net effect is a mixed
technical picture, there hasn’t been a sufficient enough deterioration in the
technicals to warrant altering my assumptions: (1) upward progress will
continue though it will be a struggle and (2) the Averages will challenge their
all-time highs/upper boundaries of their long term uptrends and fail.
A
good look at stock performance by month (medium):
More
on Sell in May (short):
A
study on the length and magnitude of past bull and bear markets (medium):
Fundamental
Headlines
US
economic data continues to come in below forecasts: both the April
manufacturing PMI and the April ISM manufacturing index came in below
expectations; while March construction spending grew less than anticipated,
though the February number was revised up.
Listening for
the next recession (medium):
In other news, Puerto Rico
missed a $422 million bond payment. The
island’s problem is the same as other mainland government entities, i.e. making
too many promises to too many constituencies, thinking that it could borrow
forever to meet those commitments and being faced with the grim reality that
that is not a workable formula. At the
risk of sounding too callous, I am not so much worried about the citizens of
that island; after all, they believed the bulls**t from and voted in the morons
that led them down path on which they find themselves. I am concerned that (1) the US taxpayers are to
be forced to bailout them out, as well as (2) the financial fallout could
spread to other entities.
Global
stats were even worse: April Japanese domestic manufacturing, Chinese flash
manufacturing PMI and the EU composite flash PMI came in below
expectations. This is a complete
reversal from last week global dataflow and suggests that those numbers were an
aberration. That said, when we get this
kind of yo yoing in the stats, it is time to sit back and wait for follow
through.
The
global growth funk (medium):
***overnight,
the European Commission lowered its 2016 EU growth and inflation forecast; the
Bank of Australia lowered key interest rates (I guess it is not on the Treasury’s
‘threatee’ list); and the April Caixin (China) manufacturing PMI fell for the
14th month in a row.
In addition, a
major troubled Italian bank was unable to raise equity capital, meaning the
recently formed Italian bank bailout fund will have to be used. This short fall was not expected and will
chew up a much larger chunk of that bailout fund than originally
anticipated. I am not sure of the exact
impact on the salvaging of the Italian banking system; but it is clearly not a
good sign.
Bottom line: the
economic numbers remain a problem, everywhere.
Focusing for the moment to the global economy, I noted in last week’s Closing
Bell the recent Treasury ‘threat’ to Japan, China and Germany to institute
trade measures if they engaged in anymore currency devaluation ploys. And that along with the rumored Chinese
threat at the recent G20 meeting could have put all further QE moves from the
major economies on hold. That would
explain the BOJ’s decision to take no more monetary easing steps the prior
week.
However, for
those ‘threats’ to work, the Japanese, Chinese and Germans would most likely have
to believe that their economies could continue to improve without any
additional QE. Given yesterday’s data
which merely reflects the trend of the last four or five months, one has to
wonder whether any of the ‘threatees’ will alter policy because the US said
to. Especially given this administration’s
sorry record of backing up any threats.
My point here is
that the Markets took yesterday’s lousy global numbers in the same vein as they
always have, i.e. poor data = more easy money = higher stock prices. Which suggests that one or more actors in
this little play don’t believe the Treasury will follow through. More sympathetic I could not be. But if the Treasury’s threat is real, then
the currency war is going to degenerate into a trade war. I am not saying that this is going to
happen. My conclusion is same as in the
Closing Bell---this is important enough to be watched closely.
In the meantime,
stocks remain very overvalued, not just by my measure (see below). It makes sense, in my opinion, to continue to
sell a portion of any stock that has done well for you and all of any loser.
Update on valuation:
My
thought for the day: I don’t know about
you but I get calls, letters, offers for free dinners all the time from
financial advisor wanting to manage my money, all claiming to have superior
track records. A couple of things to
remember when reading/listening to their pitch:
(1)
they have something to sell and whatever it is, there
are fees and commissions attached. All of
these you pay. Take a look at their
financial statements---all that revenue and fee income is your money,
(2)
they all claim to have superior performance. Every study I have ever seen indicates that
only a very small percentage of advisors have consistently superior
performance. In fact, one study shows
that if an advisor can achieve just average performance each year for ten
years, then its cumulative performance for that ten year period will be in the
top 10% of all advisors. Think about
that one,
(3)
most have conflicts of interest, that is, their
parent/affiliate creates other products [for which they get paid] for the
advisor to sell [for which he gets paid].
Everybody’s’ REIT, annuity, bond fund by definition can’t be the top
performer in its asset class.
Why
$19 trillion in debt is a problem (medium):
Investing
advice from Super Mario (short):
Where
investment money is flowing (medium):
Investing for Survival
One
habit ultra successful people have in common.
News on Stocks in Our Portfolios
Revenue of $4.29B
(-8.9% Y/Y) misses by $10M
Revenue of $5.4B (flat
Y/Y) beats by $510M.
AmeriGas
Partners (NYSE:APU): FQ2 adj. net
income of $206.9M.
Revenue of $827.4M
(-24.8% Y/Y) misses by $76.8M.
Economics
This Week’s Data
The
April manufacturing PMI came in at 50.8 versus expectations of 51.0.
The
April ISM manufacturing index was reported at 50.8 versus estimates of 51.5.
March
construction spending was up 0.3% versus forecasts of up 0.5%; however, the
February reading was revised from -0.5% to +1.0%.
Other
The
economics of the Trans Pacific Partnership (medium):
Treasury
urges congress to bail out Puerto Rico (medium):
Munger on debt
and Buffett on Wall Street (medium):
Politics
Domestic
Obamacare is
bankrupting America (medium):
More on the
timing of the next rate increase (medium):
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
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