The Morning Call
7/28/16
The
Market
Technical
The indices
(DJIA 18472, S&P 2166) were quiet again yesterday, despite the conclusion
of the Fed meeting and its slightly more hawkish tone. Volume was up and breadth continued to weaken. The VIX was down 1.7%, but still closed for
the third day back above the lower boundary of its former short term trading
range. I remain unwilling to make a direction call on
this indicator.
The Dow closed
[a] above rising 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] within a short term uptrend {17360-19106}, [c]
in an intermediate term uptrend {11277-24107} 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 {2033-2272},
[d] in an intermediate uptrend {1907-2509} and [e] in a long term uptrend
{862-2246}.
The long
Treasury was up 1.25% on volume ending above its 100 day moving average and
well within very short term, short term, intermediate term and long term
uptrends.
GLD was up 1.6%,
finishing back above the lower boundary of the former very short term
uptrend---which it negated on Wednesday.
Like the VIX, I think that we need more follow through to determine
direction. It ended above its 100 day
moving average and short term and intermediate term uptrends.
Bottom line: I was a little surprised that stocks took the
Fed statement with such ease---but they may believe as I do that the Fed will
remain on hold or they may just be waiting for the Bank of Japan’s meeting to
conclude (tomorrow). While stocks lounged
seemingly awaiting the next leg up, the VIX is doing its best to recover its
short term trading range, TLT and gold made sharp advances and the dollar and
oil were hammered. There is a lot of
inconsistency in this pattern and I have no idea what it means; but that kind
of behavior is not apt to last long. Be
careful.
Fundamental
Headlines
The
US economic data reversed yesterday, delivering three below estimates numbers:
weekly mortgage and purchase applications, June durable goods orders (primary
indicator) and June pending home sales. That
balanced out this week’s dataflow.
Overseas,
the stats were upbeat: second quarter UK GDP beat estimates though July retail
sales fell at the fastest rate in four years; Italian business and consumer
confidence rose.
***overnight,
July German and Spanish unemployment fell.
As
usual on a Fed meeting day, its statement was center stage. Net, net, the FOMC recognized that the economic
data is getting better but declined to make a move in the Fed Funds rate or to point
with any certainty to when it might.
Investors interpreted the statement as a bit more hawkish than expected---apparently
just because the Fed pointed out the obvious. That said, they left the Market
unscathed. http://www.zerohedge.com/news/2016-07-27/un-dovish-fed-stays-hold-upgrades-economy-suggests-risks-have-diminished
The
economic ‘ducks’ are lining up for a rate increase (short):
Japanese
PM Abe formally delivered the government’s stimulus package yesterday, though
confusion remains---the magnitude of the program was not disappointing;
however, there were plenty of questions on how it gets executed. Part of that problem could be alleviated by
the BOJ which meets tomorrow and will announce how it intends to participate in
this new and improved plan. Despite
comments to the contrary from several BOJ officials, investors still cling to
notion that ‘helicopter’ money will part of new policy.
Be careful what
you wish for (medium and a must read).
Italian
banks facing upcoming stress test are on the brink (medium and a must read):
Bottom line: we
are almost through a very busy news week.
So far the economic numbers are mixed, corporate earnings are coming in
slightly ahead of expectations, the Fed did diddily but Japan seems to be
working on a QEInfinity encore---the government did its part by announcing a
big fiscal stimulus policy (though the details are uncertain) and now it is the
BOJ’s turn. So far, stock investors have
accepted it all with equanimity while other markets seem to be getting
jittery.
I am confused by
these mixed signals but continue to believe that the only reasonable strategy
at this point is use the current strength to pare back your big winners and get
rid of any losers.
Update
on this earnings season: about one half of the S&P companies have
reported. 56% have beaten revenue
expectations, 73% have been earnings forecasts, but overall profits are down 3%
from last quarter.
The
latest from Doug Kass (medium and also a must read):
My
thought for the day: Investor should work hard to understand how they react to
both good and bad times especially when the Market is in the midst of one of
its extremes in manic behavior. One way
of doing that is to keep an investment diary.
That is one reason I write this piece. It is my own investment diary and is
particularly helpful in maintaining my cool during those moments of euphoria
and panic. Investing is a very emotional business and any wisdom we can extract
from our own experience is very valuable.
Investing for Survival
The
incalculable value of finding a job that you love.
News on Stocks in Our Portfolios
Revenue of $2.9B
(+7.8% Y/Y) misses by $40M
Revenue of $2.67B
(-2.6% Y/Y) beats by $60M
Economics
This Week’s Data
June
pending home sales rose 0.2% versus forecasts of up 1.3%.
The
June US trade deficit was $63.3 billion versus expectations of $61.1 billion.
Weekly
jobless claims rose 14,000 versus estimates of an increase of 9,000.
Other
The
problem with informational asymmetry (medium):
Politics
Domestic
Quote of the day
(short):
My favorite
liberal on the DNC email hacks (medium):
International
On the heels of the Brexit, Catalan parliament
votes to secede from Spain (medium):
http://www.zerohedge.com/news/2016-07-27/latest-political-coup-catalan-parliament-votes-secede-spain
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