Wednesday, July 13, 2016

The Morning Call--I hate being wrong

The Morning Call


The Market

The indices (DJIA 18347, S&P 2150) remain on a hot streak, though volume has been quite low and the VIX was up for the second day in a row (unusual for the VIX to rise on an up Market day).  Intraday, it traded down, touching the lower boundary of its short term trading range (for the sixth time) and the bounced to finish up on the day.  Breadth was strong. 

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}; if it remains there through the close today, the short term trend will reset to up, [c] in an intermediate term trading range {15842-18350} and [d] in a long term uptrend {5541-19413}.

The S&P finished [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} for the third day, resetting to an uptrend {2011-2250}, [d] above the upper boundary of its intermediate term trading range {1867-2134} for the second day; if it remains there through the close on Thursday, it will reset to an uptrend and [e] in a long term uptrend {862-2246}. 

            Who is buying stocks? (medium):

The long Treasury fell 1.6% on heavy volume.  But it continues to trade above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends. 

GLD also declined 1.6% also on heavy volume, ending above its 100 day moving average and within short term and intermediate term uptrends.

Bottom line:  the indices continued their upward momentum, blasting through multiple resistance levels, though only one break has been confirmed.  Providing something of a damper on all this joy, volume remained weak and the VIX has risen the last two days.   Confusing the picture even more is the sharp selloff in bonds and gold.  Not that bonds and gold don’t usually retreat in a strong stock market; they do.  But of late, they have traded up along with stocks; so this reversal raises questions about a change in outlook of the bond and gold traders.  That said, price is truth and the truth is stocks are challenging their highs.

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; success or failure is yet to be determined.



            Yesterday’s US economic news continued its positive streak: the June small business optimism index was slightly higher than estimates, month to date retail chain store sales were up and May wholesale/inventories were upbeat.  If you are looking for a fundamental reason to get jiggy, improvement in the trend in US economic numbers over the last two weeks is about the only source I can see.

            Update on big four economic indicators (medium):

For instance, overseas there has been nothing about which to be positive.  Yesterday, the European Economic Commission lowered its 2017 economic growth forecast for both the EU and the UK.

***overnight, both June Chinese exports and imports fell, despite the yuan’s recent drift lower; Japan lowered its outlook for economic growth and inflation while the Bank of Japan took a page from the Fed’s playbook and issued a series of on again, off again statements on the likelihood of ‘helicopter’ money.

For instance, Japan appears poised to embark on a totally new version of monetary experimentation.

For instance, the likelihood of contagion from the Italian banking sector is growing.
Bottom line: all that said, it is pointless to be poor mouthing stocks when they are in the midst of challenging their all-time highs, especially since it seemed likely this would happen anyway.  If equities do go on to confirm their rise above those highs, then I will be proven wrong (that they wouldn’t break to the upside). 

However, as I have oft repeated in these pages, investing is a business of knowing how to be wrong.  One part of our strategy is to not sell an entire positive in a stock when it trades into it Sell Half Range.  That way our Portfolios remains invested no matter how outrageous valuations get.  So I am half wrong if the stock moves higher after the sale and half wrong when it returns to Fair Value.  But the key is that I insured that I am not totally wrong and more importantly, have cash when that return to Fair Value comes.  And that allows me to pay a lesser for a stock than the price for which I sold (half) it. 

            Given the current price levels, it is an excellent opportunity to sell a portion of your winners and all of your losers.

       Investing for Survival
            Five tips for getting started investing in ETF’s.
    News on Stocks in Our Portfolios
            Cummins (NYSE:CMI) declares $1.025/share quarterly dividend, 5.1% increase from prior dividend of $0.975

            Procter & Gamble (NYSE:PG) declares $0.6695/share quarterly dividend, in line with previous.


   This Week’s Data

            Month to date retail chain store sales were stronger than in the prior week.

            May wholesale inventories rose 0.1% versus expectations of up 0.2%; however, sales increased 0.5%

            Weekly mortgage applications rose 7.2% while purchase applications were flat.

            June import prices rose 0.2% versus estimates of up 0.5%; export prices jumped 0.8% versus forecasts of up 0.3%.




  International War Against Radical Islam

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