The Morning Call
7/21/16
The
Market
Technical
The indices
(DJIA 18595, S&P 2173) resumed their advance. Volume remains low, breadth strong. The VIX (11.7) is in a short term downtrend
and is nearing the lower boundary of its intermediate term trading range (10.3).
The Dow closed
[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 {17282-19032}, [c]
within intermediate term uptrend{11243-23973} and [d] in a long term uptrend
{5541-19461}.
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 {2023-2262},
[d] within its intermediate term uptrend {1903-2505} and [e] in a long term
uptrend {862-2246}.
The long
Treasury fell, but continued to trade above its 100 day moving average and well
within very short term, short term, intermediate term and long term
uptrends.
GLD was down
1.4%, ending above its 100 day moving average and within short term and
intermediate term uptrends but right on the lower boundary of that developing
very short term uptrend I mentioned yesterday.
Bottom line: prices aren’t staying down long, are they? The momentum is clearly to the upside. In addition, the long Treasury is in
retreat. True, it remains in uptrends
across all timeframes; but it can fall another 7% and not even break its very
short term uptrend. The point being that
there is a lot of room left for stocks to rally and TLT to fall before there
would be anything technically amiss. A
challenge of the Averages’ upper boundaries of their long term uptrends
(19481/2246) seems highly likely, though I believe that it will be unsuccessful.
Potential
bull trap? (medium):
Fundamental
Headlines
Yesterday
was another slow one for economic data.
In the US, mortgage and purchase applications were down. Overseas, the UK unemployment rate hit an
eleven year low.
As
slow as the first three days of the week have been, today will be a barn burner
with five US datapoints reported and an ECB meeting. Of course, no matter what the results, given
the current environment, both good and bad news will likely be interpreted
positively by the Market.
***overnight,
the ECB leaves rates unchanged (what a surprise); the Bank of Japan said that
there was no need for ‘helicopter’ money; China suspended reporting two key
economic indicators; June UK retail sales declined.
Bottom
line: the Market seems to be now in a sweet spot as the US economic stats are
improving and the Fed reticent to raise rates.
I know that I have said this a hundred times, but (1) a recovering
economy won’t change our Valuation Model one iota. The assumptions in that Model are for an
economy growing at below average long term secular rate. That hasn’t changed; indeed, the risk has
been that the US was sliding into a recession.
The chance that it might not, doesn’t mean that equities are worth more
all of a sudden, (2) however, given the gross mispricing and misallocation of
assets, a tightening in monetary policy will, in my opinion, have an equal and
opposite impact on asset pricing and allocation.
So
my take is that while investors may appear to be getting jiggy over better economic
numbers, what really counts is the absence of any Fed tightening. The problem is that if the economy really is
mending, the eggheads in the central banks will start tightening sooner or
later. The point being that investors
can’t have both for very long.
Don’t
chase price. Use current valuations to
sell a portion of your winners.
As
of last night, 14% of S&P companies have reported earnings, 64% beat
estimates but earnings were down 4.4%.
My
thought for the day: another cognitive
bias of investors that it relevant today is recency bias, that is, the tendency
to extrapolate recent events far into the future. For instance, surveys reveal that market
strategists recommended weighting in stocks peaked near the popping of the internet
bubble and the start of the collapse in the financial system. Need I say more?
The
ECB may be running out of options on its bond buying program (medium):
For
the optimists (medium):
News on Stocks in Our Portfolios
Revenue of $3.43B
(flat Y/Y) beats by $20M.
Revenue of $3.22B
(+2.9% Y/Y) misses by $60M.
Revenue of $6.03B
(+3.4% Y/Y) beats by $450M
Economics
This Week’s Data
Weekly
jobless claims fell 1,000 versus expectations of an 11,000 increase.
The
July Philadelphia Fed manufacturing index was reported at -2.9 versus estimates
of +5.0
The
June Chicago national activity index came in at +.16 versus the May reading of
-.51.
Other
Another
bad month for trucking (short):
Art
sales tumble (medium):
Debt’s
impact on stocks, bonds and gold (short):
The
cost of tax breaks (short):
Rising
credit risks (medium):
Politics
Domestic
Some thoughts on
plagiarism (medium):
Quote of the day
(short):
Update on global
warming (short):
http://www.zerohedge.com/news/2016-07-20/global-warming-expedition-stopped-its-tracks-arctic-sea-ice
International War Against Radical
Islam
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