The Morning Call
6/16/16
The
Market
Technical
The indices
(DJIA 17640, S&P 2074) continued weak, though instead of selling down early
then rallying into the close as they did Tuesday, they were up for most of the
day and fell into the final bell---a much less positive pattern. Volume was
flat. Breadth weakened but is now in
oversold territory. The VIX was off
slightly, but still finished well above its 100 day moving average, now support.
The Dow closed
[a] above its rising 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] within a short term trading range
{17498-18726}, [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 rising 100 day moving average, now support, [b] above
its 200 day moving average, now support, [c] within a short term trading range
{2037-2110}, [d] in an intermediate term trading range {1867-2134} and [e] in a
long term uptrend {830-2218}.
The long
Treasury was strong, ending above its 100 day moving average and within short, intermediate
and long term uptrends.
GLD (123.6) was
up. It is well above the lower boundary its
100 day moving average and is nearing the upper boundaries of its short term
trading range (124.2) and intermediate term trading range (125.6).
Bottom line: for
the first time that I can remember, investors reacted negatively to a dovish
Fed. I don’t know if this was just noise
or a sign of things to come. But the
Market must still deal with Friday’s expirations and the Brexit. Still, best to do nothing---unless you want
to take profits.
The TLT chart
couldn’t get much more bullish; though if this is a reflection of recession or coming
economic/political turmoil, it is not a plus for stocks.
GLD is trying to
send a similar signal. But it is not
there yet.
China
selling US stocks (medium):
Fundamental
Headlines
Yesterday’s
economic stats were negative on balance: weekly mortgage and purchase
applications fell, the June NY Fed manufacturing index was better than expected
but May industrial production (primary indicator) and capacity utilization were
worse, May PPI and PPI ex food and energy were higher than anticipated.
Update
on big four economic indicators (medium):
Overseas, UK
unemployment fell to an eleven year low.
***overnight,
the Bank of Japan left key interest rates unchanged and lowered its inflation outlook;
the Swiss National Bank also left key interest rates unchanged; UK retail sales
were well above forecast.
Of
course, the big news of the day was the completion of the June FOMC meeting
with its accompanying statement and the Yellen press conference. Surprise, surprise, FOMC ended all hawkish
commentary and sounded more dovish than it has in weeks: (1) no rate hike in
June, (2) it left open the possibility of two rate hikes in 2016, though six
members believe that there will be only one, (3) most importantly, it lowered
the rate increase objectives for 2017 and 2018, (4) the economic picture
remains mixed and (5) there were no dissents.
In
short, more mewing, disguising fear, uncertainty, cluelessness or all of the
above. With the US economy slowing, the
rest of the world’s economies in trouble, the Fed is never going to raise rates
again until the current regime is replaced or fears replacement. There will always be an excuse.
Bottom
line: surprisingly, stocks sold off after the latest dose of dovish pabulum. Of late, stocks have been up no matter what
the Fed said because awesome was always part of its economic assessment. With the downgraded outlook for future rate
increases, it seems that all is not awesome.
That has to give investors pause in what has been their unshakable faith
that the Fed really knows what is going on.
So I can’t help wonder if they are starting to realize that there is a
point to growing chorus of central bank detractors. Too soon to know but yesterday’s pin action
was not a good sign.
More
sanguine thoughts on a Brexit (medium):
My
thought of the day: most brokers and investment advisors spend a lot of time
talking about stocks, particular stocks, that they want you buy or are enthralled
with. And I do the same. Indeed, three of our Model Portfolios don’t
even have any asset allocation aspect to them---they are all stocks. A big part of the reason is that I am one guy
and it is hard enough dealing with only one class of securities much less a
dozen. In addition, doing the analytical
work on the individual securities within each asset class is simply impossible.
But that doesn’t
mean that asset allocation isn’t an important part of overall portfolio management. Part of the reason for setting up the ETF
Portfolio was to introduce asset allocation to our subscribers. In this Portfolio, I can make the asset class
decision and buy a well-diversified portfolio of matching securities (an ETF) at
an inexpensive price.
My point here is
that if your portfolio is all stocks, then you have no downside protection if
the bottom drops out; if it is all bonds, you have severely restricted your
portfolio’s ability to grow. That split
between stocks and bonds (or alternative assets) is a function of your need to grow
income, your ability to sleep at night and a dozen other factors that are
particular to only you. But it
determines a balance of risk and reward that ultimately governs how your
portfolio performs relative to your needs.
In the end, that is a lot more important a decision than whether you buy
Tesla or not.
News on Stocks in Our Portfolios
Economics
This Week’s Data
May
industrial production declined 0.4% versus expectations of a fall of 0.1%;
capacity utilization was 74.9 versus estimates of 75.2.
May CPI came in at +0.2%
versus forecasts of +0.3%; ex food and energy, it was +0.2% versus consensus of
-0.2%.
Weekly
jobless claims rose 13,000 versus projections of 6,000.
The
June Philadelphia Fed manufacturing index was reported at 4.7 versus
expectations of 0.8.
The
first quarter US trade deficit was $124.7 billion versus an anticipated $125.0
billion.
Other
The
false narrative of big government (medium and a must read):
Jobs
and the stock market (medium):
China
credit growth slowing (medium):
Politics
Domestic
More on the
devaluation of our education system (medium):
It is getting
worse for Clinton (medium):
International War Against Radical
Islam
A
month of Islam in Britain (medium):
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