The Morning Call
6/3/16
The
Market
Technical
The indices
(DJIA 17838, S&P 2105) continued their pattern of an early sell off
followed by an intraday recovery. Like
Wednesday, they finished on a plus note.
Volume was flat, breadth mixed. The VIX fell 4%, which was a lot bigger than would
normally be case on an up five point S&P day. However, it remained between the lower boundary
of its short term trading range and the 100 day moving average.
The Dow closed
[a] above its 100 day moving average, now support and is also rising, [b] above
its 200 day moving average, now support, [c] within a short term trading range
{17498-18736}, [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, also rising, [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 was up again, pushing through the upper boundary of a very short term downtrend;
a close above that boundary today would negate it. Since it is already well above the lower boundary
of its short term uptrend and its 100 day moving average, if it holds above
that very short term downtrend, then the upper boundary of its intermediate
term trading becomes a target on the upside.
GLD fell, ending
below the level of its 100 day moving average for the second day; if it closes
there today, it would be revert to resistance. It remained above the lower boundary
of its short term trading range; but if this level breaks, our Aggressive Growth
Portfolio will take profits in GDX.
Bottom line: the
Averages continue to act like it wants to go higher. The upper boundaries of their short term
trading ranges are not that far away; so at the very least, it is highly likely
that they will be challenged. If that is
successful, then the upper boundaries of their intermediate term trading ranges
and their long term uptrends become the next resistance levels. I continue to believe that those intermediate
term trading ranges are not likely to be broken and the long term uptrends are
highly unlikely to be broken.
Election year
seasonal pattern update (short):
A confirmed break
in GLD below its 100 day moving average and the lower boundary of its short
term trading range will likely lead to a paring of the Aggressive Growth Portfolio’s position in GDX.
Fundamental
Headlines
Yesterday
witnessed only a couple US economic releases, none of which were that
important: the May ADP private payroll report showed job gains slightly less
than anticipated, weekly jobless claims fell a tad but were in line and monthly
retail chain store sales were down marginally on a year over year basis.
The
more significant news came from overseas in which (1) the ECB left rates
unchanged but boosted its corporate bond purchase program---hardly a ringing
endorsement of the health of the EU economy and (2) OPEC failed to reach any
kind of agreement on production quotas---which I had expected and assumed that
everyone did also. The oil gurus did
note that Saudi Arabia sounded a bit more conciliatory than in the past; so I guess
hope (for production quotes) will continue to spring eternal. Nevertheless, oil sold off after the meeting
which means anyone foolish enough to bet on what this crowd is going to do, got
what they deserved.
OPEC fails to
impose production quotas
Fed
policy, or more properly said, the likelihood of a June/July rate hike
continues in the forefront of investors’ minds.
That was helped by yet another Fed official extolling the virtues of an
increase in the Fed Funds rate.
My
skepticism notwithstanding, the Fed is sure giving the firm impression that a
second hike is in the offing. I can come
up with any number of reasons why it would not: (1) the economy is not awesome,
(2) inflation is no threat, (3) the Brexit is coming, the Brexit is coming and
(4) the global economy is a mess and getting messier. Unfortunately, the only real reason for raising
rates is that it is the right thing to do and, indeed, should have been done
two or three years ago. But then why let
the right thing to do get in the way of an elite bureaucracy’s hubris assuming
that it knows better than the free markets how to solve an economic problem.
The
Fed’s rate hike (or not) (medium):
One
third of all global government debt is now at negative rates (medium and a must
read):
The
latest from Bill Gross (medium):
Bottom line: the
data this week have been fairly balanced; though today will witness a bevy of
new stats. Their results will determine
how I score the week. Still, the fact
that this week could be upbeat to neutral would make this the fourth such week
in a row. To be sure, this circumstance
(a run of positive data weeks) has occurred several times over the past three
years, only to later falter. But it
could be different this time; and we need to take that into account as we look
forward. At the moment, the end of the
slide in growth is just a gleam in my eye.
Unfortunately, whether or not this more positive economic performance
will continue is somewhat dependent on what is happening overseas. And on that point, there are no doubts. The stats have been, are and there is no sign
that they will be anything but negative.
Even if the best case scenario were
to develop, stocks are still overvalued. I
continue to believe that every portfolio should own more than a token cash
position.
The
latest from Doug Kass (medium):
B of A now
looking for a correction (short):
Update
on valuation (medium):
Asset
returns and the global economy (medium):
My
thought for the day: the financial service industry spends a lot of money
trying to convince us to save more. The
primary reason is not to insure that we have enough money on which to retire;
but to induce us spend more money on their products, many of which come with
significant fees. In short, retirement
is a big profitable business. Consider
this: (1) most of the financial advisers are nothing but salesman. They get paid on volume not performance, (2)
fees have a corrosive effect on your portfolio’s performance; the larger the
fee, the more corrosive the effect. So
be careful what you buy, make the effort to determine not only the sales fee
(commission) but also the asset management fee.
Remember that over the long term, the average annual return from the
stock market is around 7-8%; and that is a number calculated with no fees
included. So the math is simple: you
start with 7-8%, subtract the fees and that will be your return---assuming that
the manager can earn an average return.
Unfortunately, the statistics show most managers don’t earn an average
return.
Investing for Survival
Thoughts
on the Fed Model (for equity valuation).
News on Stocks in Our Portfolios
Economics
This Week’s Data
Monthly
retail chain store sales fell slightly on a year over year basis.
May
nonfarm payrolls grew 38,000 versus expectations of 158,000; in addition, the April
number was revised down from 160,000 to 123,000. That ought to tighten some sphincters at the
Fed.
The
April trade deficit came in at $37.4 billion versus estimates of $41.0 billion.
Other
The
Organization for Economic Cooperation and Development on a Brexit and the
global economy. Every EU advocate is
talking trash about a Brexit, so you need to take this with a healthy dose of
criticism---the OECD is talking its book.
That said, the initial Market response could very well reflect the dire
consequences trumpeted by anti-Brexit cabal (medium):
Politics
I
hesitate to call this Friday morning humor; but it is funny. Unfortunately, it is a commentary on the
sorry state of the US education system (short):
Hard
as it is to believe; here is more Friday morning humor and it too relates to
our education system (short):
Domestic
ACLU official
quits over restroom debate (short):
International War Against Radical
Islam
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