The Morning Call
6/20/16
The
Market
Technical
After
the initial downdraft week before last, the S&P regained its footing last
week. Notice it seemed to find support several
times at a key Fibonacci level. I think
that the bulls still have momentum on their side though clearly it has faded
some. Unless the short term trading
ranges are broken on the downside, my assumption is that the S&P will
continue to challenge the upper boundaries of its trend ranges.
The
long Treasury is hitting on all cylinders, i.e. in uptrends across all
timeframes. The good news is that it is still
a long way from the upper boundary of its long term uptrend. The bad news is that to get even close
suggests negative US rates; and for that to occur, we would have to have serious
economic problems.
While
GLD still can’t break to the upside, it is giving it the old college try. But to sustain its current uptrend it has to overcome
the very dense resistance zone that incorporates the upper boundaries of its
short term and intermediate term trading ranges---no small feat as we have
already seen. A break above that would
indicate clear sailing to the 140 level (the upper boundary of its long term
downtrend).
After
a big jump up, the VIX has been trading in a row range, seemingly digesting
those large gains. The negative side (for
stocks) is that it has reset its 100 day moving average to support after having
bounced off the lower boundary of its short term trading range five times. The positive side (for stocks) is that the
VIX can’t get out of the 20 range.
Fundamental
Last
week’s data were in the positive camp again: above estimates: the June housing
market index, May housing starts, the May small business optimism index, April
business sales, the June NY and Philadelphia Fed manufacturing indices, month
to date retail chain store sales, May retail sales, May PPI and PPI, ex food an
energy; below estimates: May export and import prices, May CPI and CPI, ex food
and energy, May industrial production and capacity utilization, April business
inventories, weekly mortgage and purchase applications, weekly jobless claims;
in line with estimates: May retail sales, ex autos, first quarter US trade
deficit.
The primary
indicators were also upbeat May retail sales (+), May housing starts (+) and May
industrial production (-). With the
number of neutral to positive data weeks growing however erratically, I have to
consider that the economy is stabilizing even if at lower growth rate versus
slipping into recession. I am not
changing our forecast just yet primarily because the second quarter of the last
couple of years has been more upbeat to only slip again in subsequent quarters. However, the yellow light is starting to
blink. The score is now: in the last 40
weeks, ten have been positive to upbeat, twenty eight negative and two neutral.
Overseas, there
were few stats; but they also were positive. May Chinese industrial production
was in line while fixed investment and retail sales were below expectations; UK
unemployment fell to an eleven year low and retail sales were well above
forecast; Fitch lowered the Japanese government credit outlook (not the rating
but the outlook for the rating) from stable to negative.
***overnight,
Japanese exports fell for the fifth month in a row; and the IMF urged Japan to
overhaul its stimulus (read monetary) policies.
It was also a
busy week for the central banks who basically did nothing. The Fed, the Bank of Japan and the Swiss
National Bank all left key interest rates unchanged. The most important of these was our own Fed
which did another policy 180, putting itself back into the firmly dovish camp---to
the confusion of all.
Then on Friday,
the St Louis Fed chief said that the Fed needed to back off its ‘everything is
awesome’ routine and acknowledge that QEInfinity hasn’t done all that had been
peddled by the Fed. In short, the Fed’s economic
forecast has been wrong and once again it waited too long to transition to
normalized monetary policy. By
implication, that means that when, as and if the economy slips into recession,
the Fed has nada to combat it with. This
seems something of a follow up to the lowered rate hike forecasts coming out of
Wednesday’s FOMC meeting. Whether this
gets echoed by other Fed members, especially Yellen (she testifies before
congress twice this week), remains to be seen.
But it is a sign that at least someone in the Fed has heard and has (1)
recognized that the Fed’s forecast is a pipedream, (2) its policies are a lot
less effective that it [and investors] has assumed, (3) hence, its policies in
the future will be less effective [the Fed put is dead?] and (4) is giving official
voice to the rising criticism from outside quarters.
Jeff
Gundlach on the Fed (medium):
Nothing
has changed: recession, a sterile Fed and excessive equity valuations.
Investing for Survival
Successful
investing requires a plan.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Other
Politics
Domestic
This is unbelievable---the
Orlando shooter’s father is well connected in Washington and has been seeking
support from the US for the Afghan presidency.
51% of US
muslims want sharia (medium):
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