The Morning Call
7/14/16
The
Market
Technical
The indices
(DJIA 18372, S&P 2152) took a bit of a rest yesterday, though nothing about
which the bulls should be alarmed.
Volume remained skimpy but breadth was strong. The VIX fell 4%, continuing its challenge of the
lower boundary of its short term trading range.
The Dow closed
[a] above rising 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] above the upper boundary of its a short term
trading range {17498-18167} for the third day, resetting to an uptrend {17250-19000},
[c] above the upper boundary of its intermediate term trading range
{15842-18350}; if it remains there through the close next Monday, it will reset
to an uptrend and [d] in a long term uptrend {5541-19431}.
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 uptrend
{2011-2250}, [d] above the upper boundary of its intermediate term trading
range {1867-2134} for the third day; if it remains there through the close on today,
it will reset to an uptrend and [e] in a long term uptrend {862-2246}.
The long
Treasury rebounded 1.1%, continuing to trade above its 100 day moving average
and well within very short term, short term, intermediate term and long term
uptrends.
GLD bounced 1%, ending
above its 100 day moving average and within short term and intermediate term
uptrends.
Bottom
line: bulls couldn’t have asked for
better pin action in an overbought Market, i.e. pausing instead of retracing
some of the gains. So I expect more
upside momentum; and that means more resistance levels will likely be
successfully challenged. Neither volume nor
the VIX are providing much support; but price is the key and its direction at
this moment is clearly up.
I have noted
several times that (1) I thought that the Averages would likely challenge the
upper boundaries of their short and intermediate term trading ranges, but (2)
wouldn’t be successful. They are clearly
in the midst of those challenges; and to date, they have been quite successful.
Fundamental
Headlines
Yesterday’s
economic stats were a bit more mixed than Monday/Tuesday’s: weekly mortgage
applications rose but the more important purchase applications were flat; June import
prices were well above expectations but export prices were well below; the June
US budget was in surplus but year to date the deficit is 26% ahead of last year’s.
In
addition, the Fed released its latest Beige Book which portrayed an economy
that continues to make modest progress with few inflationary pressures---likely
a good sign that there are no rate hikes on the horizon.
That
helps sustain the primary theme underlying the Market---lots of free
money. That got some additional help
from the Cleveland Fed chief who suggested in a speech that ‘helicopter’ money is a legitimate policy
alternative (medium):
In
addition, investors are eagerly anticipating today’s meeting of the Bank of
England during which it is hoped that additional QE will be forthcoming to ward
off any potential negative consequences of Brexit.
Since
Bernanke is in Japan, likely lobbying for ‘helicopter’ money, it is only
appropriate that the Bank of Japan mimic his tactics by issuing a series of
conflicting statements regarding ‘helicopter’ in order to keep the Markets off
balance until the deed is done.
***but
overnight in Japan, dissention arose in the ranks.
Here
be dragons (medium and a must read):
The
source of the Italian banking problem (short):
Overseas, both June
Chinese exports and imports fell while Japan lowered its outlook for economic growth
and inflation.
Bottom line: the
Averages short term trading ranges have reset and their intermediate term
trading ranges are in the midst of challenges---with the odds clearly in favor them
resetting also.
That puts stock
valuations (as calculated by our Valuation Model) further into nose bleed
territory. As you know, stock prices
have remained rich far longer than I ever thought; and this latest surge in
momentum likely means that they will get even richer for longer.
The question is,
has something occurred either by way of the fundamentals or the rationale for
historic valuations that would impact our Model sufficiently to warrant altering
my current investment stance? As to the
former, I go to lengths recording not just the economic data (including
corporate profitability) in the US but also abroad---and nothing has
changed. As to the latter, the current
low (sometimes negative) interest rates have an impact on P/E’s. But those rates are artificially induced by an
aggressive, experimental central bank policy, the consequences of which I haven’t
a clue.
So my choice is
to assume valuation parameters have been positively altered (it is different
this time) or that they are simply at an extreme more pronounced than anything
we have experienced. I have been around too long and seen too much
money lost to accept ‘it is different this time’ as a viable explanation. Maybe it will be different this time; but I think
prudence argues against chasing prices higher.
Besides as I noted yesterday our Portfolios are still 50% invested; so
they are benefitting from the current euphoria.
Plus the additional holding of GDX, which has more than doubled in the
last eight months, helps offset the opportunity costs on the other 50% of our
Portfolios.
I
continue to believe that given the current price levels, it is an excellent
opportunity to sell a portion of your winners and all of your losers.
The
latest from Doug Kass (medium):
Subscriber Alert
In
the recent quarterly fundamental review of Amerigas Ptrs (APU-$48), it failed
to meet the quality criteria that qualifies it for inclusion in the High Yield
Universe. Accordingly, it is being
Removed from the High Yield Universe and Sold by the High Yield Portfolio at
the Market open.
Investing for Survival
As
simple approach to growing your wealth.
News on Stocks in Our Portfolios
Revenue of $2.8B (-3.4% Y/Y) in-line.
Economics
This Week’s Data
The
latest Beige Book didn’t vary much from past narratives---everything is
improving modestly and inflation is under control.
The
June Treasury budget was in surplus by $6.3 billion; but year to date, it is in
deficit by $401 billion versus $316 billion at this point last year.
Weekly
jobless claims were unchanged versus an anticipated rise of 11,000.
June
PPI came in up 0.5% versus expectations of a 0.3% rise; ex food and energy, it
was up 0.4% versus a forecast of up 0.2%.
Other
Update
on the national debt (short):
Politics
Domestic
A review of the
code of conduct for US judges (short):
A review of
Comey’s decision (a bit long but worth the read):
How illegal
immigrants profit from US food stamp program (short):
International War Against Radical
Islam
French intel chief warns of civil
war (short):
Gangster islam (5 minute video):
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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