Wednesday, June 8, 2016

The Morning Call--S&P breaking to the upside?

The Morning Call

The Market

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.


            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

Brown-Forman (NYSE:BF.B): FQ4 EPS of $2.60 may not be comparable to consensus of $0.72.

Revenue of $933M (-1.5% Y/Y) beats by $34M.


   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%.


            Shrinking US/China trade (short):

            June is off the table (short):

            Saudi Arabia---reading the tea leaves (medium):


            Obamacare leaves 100,000 Coloradans with no insurance (medium):

            Presented without comment (short):


Inalienable rights versus constitutional rights (short):

  International War Against Radical Islam

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