The Morning Call
6/8/16
The
Market
Technical
The indices
(DJIA 17938, S&P 2112) moved up again, though they closed off session highs.
Volume was up slightly; breadth continued to strengthen. The VIX rose for the second time on up Market
days. Intraday, it actually touched the
lower boundary of its short term trading range, the rebounded (for the fifth
time) to finish up.
The Dow ended
[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 closed
[a] above its rising 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] above the upper boundary of its short term
trading range {2037-2110}; if it remains there through the close on Thursday,
the trend will reset to up, [d] in an intermediate term trading range
{1867-2134} and [e] in a long term uptrend {830-2218}.
The long
Treasury (132.3) moved higher, remaining above its 100 day moving average and
well within a short term uptrend. It is
nearing the upper boundary of its intermediate term trading range (133.8).
GLD declined
fractionally, ending well above its 100 day moving average and the lower
boundary of its short term trading range.
Bottom
line: the upward momentum continues with
the S&P now challenging the upper boundary of its short term trading range. On the other hand, the VIX closed up for the
second up Market day in a row. That
seems contradictory. But at this point, I
don’t think it makes any sense to argue with the short term momentum. I continue to think that the Averages will
probably challenge the upper boundaries of their intermediate term trading
ranges and even possibly the upper boundaries of their long term uptrends. However, I don’t think that they will be
successful.
Fundamental
Headlines
Yesterday’s
US economic news was not that great: first quarter US productivity was in line
but unit labor costs were higher than expected, month to date retail chain
store sales were soft and April consumer credit grew less than
anticipated. In other words, not
awesome.
Which twin has
the Toni (short)?
However,
overseas we got a rare upbeat day: EU first quarter GDP was slightly better
than estimates; April German industrial output was much better than forecasts.
***overnight,
the ECB begins its corporate bond buying program; first quarter Japanese GDP
growth was revised up from the original estimate; meanwhile Japan’s largest
bank quits as a primary bond dealer; May Chinese trade data continued to
deteriorate, though real sales were above consensus; April UK industrial output
was above forecasts; the World Bank lowered its 2016 and 2017 global economic
growth expectations.
But
the Fed remains center stage; and it appears that consensus is moving towards
no rate hike in June, a small chance in July and perhaps a September move. However, given the extreme caution with which
this Fed has moved, I don’t think that it will risk upsetting the Markets less
than two months before the election.
David
Stockman on Yellen’s speech (medium and as usual a must read):
Using
the Fed Model to buy stocks has never been more dangerous (short):
Bottom line: as
long as investors believe that the Fed can do no wrong, the floor under equity prices
is likely to remain, irrespective of the fact that the economy is softening,
corporate profits are declining and stocks are in nosebleed territory valuation
wise. In that atmosphere, then why not buy stocks? First of all, to buy stocks when they are a
couple of percent below their all-time high and ~5% from the upper boundary of
an eighty year plus uptrend, is to pay a lot for the risk to own a puny
reward. Second, I am not a skilled
trader; and those are the only guys who bought stocks yesterday that have a chance
of making money in the short term. I
clearly have no clue when the current mispricing of assets ends; but I am
willing to wait to avoid getting hammered.
My thought for
the day: I love hockey. I barely knew it existed back in 1968. It was never on television. Certainly nobody
in Oklahoma had the first clue about the sport.
But after I moved to Boston, I was channel surfing one Sunday after
football season was over and stumbled on to a Bruins game. I was hooked instantly.
So I watch a lot
of hockey. Right now, we are in the
midst of this year’s Stanley Cup playoffs.
I was watching game 4 Monday night and for some reason, I started thinking
about how do these guys decide when to shoot the puck on goal versus passing it
in such a high stress environment? I
know that it has a lot to do with open lanes, proximity to the goal and whether
a team mate is creating a blind spot for the goalie. But still, the action moves so fast and the
effort so frenetic; how do they decide under such conditions of stress when to
shoot? The answer is that they have a plan/a system,
ingrained in their memory through practice and experience to know when to pull
the trigger and when to be patient.
(I am now finally
getting to the point).
And that is what
our Price Disciplines do. They allow us
to make pricing decisions on stocks under calm conditions where we have the
time to do the valuation analysis properly.
So when the Market is panicking, the Buy Price decision has already been
made. We don’t have do some quick
analysis and then start to second guess ourselves. The same in true on the Sell side. We have made our Sell decision long before some
Market moonshot tempts us to pay heed to the media that is trumpeting the
greatest bull market ever or thinking that it is different this time (because
it never is) or caring more about boasting to our colleagues about our profits
in a stock versus actually locking them in.
In short, we have a plan that
enables us to react a stock’s movements under stressful conditions calmly and intelligently
according to our discipline.
Investing for Survival
20
common investor mistakes.
News on Stocks in Our Portfolios
Revenue of $933M
(-1.5% Y/Y) beats by $34M.
Economics
This Week’s Data
Month
to date retail chain store sales grew at a slower rate than the prior week.
April
consumer credit increased $13.4 billion versus expectations of up $18.0
billion.
Weekly
mortgage applications rose 9.3% while purchase applications were up 12%.
Other
Shrinking
US/China trade (short):
June
is off the table (short):
Saudi
Arabia---reading the tea leaves (medium):
Politics
Obamacare
leaves 100,000 Coloradans with no insurance (medium):
http://www.zerohedge.com/news/2016-06-07/nearly-100000-left-without-insurance-colorado-due-obamacare
Presented
without comment (short):
Domestic
Inalienable
rights versus constitutional rights (short):
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
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