The Morning Call
5/4/16
The
Market
Technical
The indices
(DJIA 17750, S&P 2063) gave up all of Monday’s gains on increased volume and
weakening breadth. Of note is that the
flow of funds indicator is breaking down.
The VIX was up 6%; it continues to act as if it has made a bottom.
The VIX versus
credit spreads---though I am not sure about the author’s conclusion (medium):
The Dow closed
[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 {17758-18712};
if it remains there through the close on Thursday, it will reset to a trading
range, [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] in a short term 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 finally had a good day, bouncing off a key Fibonacci level but remains
within an area of congestion dating back to early February.
GLD was down
fractionally, but remained above its recent high. It also finished above its 100 day moving
average and within a short term uptrend.
Bottom
line: following Monday’s reset of the S&P
to a short term trading range, the Dow is now challenging the lower boundary of
its short term uptrend. In addition, cracks are starting to appear in the
breadth indicators. I am holding to my
assumptions until the Dow completes its challenge of its short term uptrend. If successful, then we will be looking at
another failed attempt by the Averages to attack their all-time highs---clearly
not good. If it remains within the
uptrend then my assumptions will remain unchanged: (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.
Fundamental
Headlines
Two
minor datapoints yesterday: April retail chain store sales were slightly lower
than anticipated while April light vehicle sales were slightly above consensus.
Overseas,
the reversion to negative continues: the European Commission lowered its 2016 EU
growth and inflation forecast and the April Caixin (China) manufacturing PMI
fell for the 14th month in a row.
China
continues to ‘manage’ its economic narrative (medium and a must read):
***overnight,
March EU retail sales fell 0.5%.
In
addition, the Bank of Australia lowered key interest rates. In light of the recent Chinese (G20) and US
Treasury threats, I think that Australia can get away with such a move because
it is a primary supplier of raw materials to China, so this can’t really be
termed an attempt at competitive currency devaluation.
How
long can the Fed stay wrong before it admits failure? (medium and a must read):
On
the other hand, maybe the Fed is tightening at the same time that it is
mouthing dovish comments (medium and a must read):
Bottom line: the
economic numbers were again disappointing.
Of particular note is not just this week’s Chinese data but also the
anecdotal evidence presented in the above link that the government is taking
extraordinary steps to ‘manage’ the reported stats as well as their analysis. I think that this calls into question the
veracity of the recent string of upbeat economic numbers and all the happy talk
about a Chinese recovery.
Meanwhile, if
the US and China are attempting to muscle other central bankers to forgo
additional QE steps (‘if’ being the operative word), the investors are going to
lose the poor economy = more easy money connection that has proven so
profitable to date.
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.
Yesterday, I discussed one of
the problems that investors face is the constant barrage from brokers and/or
financial advisors to do/buy something and do it right now. How else are they going to get paid? Usually, the reason for buying is something along
the lines of ‘our analyst believes the stock is going to double in the next
year’. Not only do they want you to buy
something, but more often than not, they want you to sell something (a relative
underperformer) to pay of it---and that can generate a capital gain tax.
One of the prime objectives of
our Price Discipline is keep the investor trading activity to a minimum. Why? Because commissions and the natural friction
of trading are a huge cost to a portfolio.
If you have done your due diligence on a stock, then I am assuming you
have a price objective that is a good deal higher than the price paid. Aside from maintaining your work on the
underlying fundamentals on the underlying company, this is a time to do
nothing. The point being: do your due diligence
and stick with the decision---as long as the stock doesn’t violate your Stop
Loss Price.
Increasing your Portfolio’s performance
by not incurring unnecessary commissions, fees, market friction and taxes is a
winning proposition for investors. There
is much to be said for doing nothing.
Investing for Survival
The
benefits of rebalancing a portfolio’s asset allocation.
News on Stocks in Our Portfolios
PepsiCo (NYSE:PEP) declares $0.475/share quarterly dividend, 7.1%
increase from prior dividend of $0.7025.
Medivation
(NASDAQ:MDVN) +3.9% AH following a Reuters
report that Pfizer (NYSE:PFE) has approached the company to express interest in
an acquisition, raising the
possibility of a bid rivaling Sanofi's (NYSE:SNY) $9.3B offer by
Sanofi.
MDVN has not yet decided whether it should
engage with PFE in negotiations and is in discussions with its financial and
legal advisers, according to the report.
MDVN last week rejected
SNY's $52.50/share takeover proposal, and PFE, Novartis (NYSE:NVS) and AstraZeneca
(NYSE:AZN) have been speculated as potential suitors.
Economics
This Week’s Data
April
retail chain store sales were up 0.8% versus estimates of up 0.9%.
April
light vehicle sales were 17.4 million versus forecasts of 17.3 million.
Weekly
mortgage applications fell 3.4% while purchase applications rose 1.0%
The
April ADP private payroll report showed an increase of 156,000 jobs versus
expectations of a rise of 193,000.
The
May US trade deficit came in at $40.4 billion versus projections of $41.4 billion.
First
quarter nonfarm productivity fell 1.0% versus an anticipated decline of 1.2%;
unit labor costs rose 4.1% versus estimates of +3.5%.
Other
Blowback
on the Transatlantic Trade and Investment Partnership agreement (medium):
Politics
Domestic
Inequality that
matters (short):
Club for Growth’s
annual congressional scorecard.
A great thought
experiment (short):
International War Against Radical
Islam
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
No comments:
Post a Comment