The Morning Call--Next stop S&P 2246

The Morning Call

7/19/16

The Market

         

    Technical

The indices (DJIA 18533, S&P 2166) continued to march upward, though volume remains anemic.  Breadth is strong.  The VIX closed below the lower boundary of its short term trading range for the second day; if it finishes there today, that trend will reset to down.

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 {17262-19012}, [c] above the upper boundary of its intermediate term trading range {15842-18350} for the fourth day, resetting to an uptrend{10770-23500} 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 {2019-2259}, [d] within its intermediate term uptrend {1900-2502} and [e] in a long term uptrend {862-2246}. 

The long Treasury was down fractionally, but continued to trade above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends. 

http://www.marketwatch.com/story/beware-a-flattening-yield-curve-still-means-something-2016-07-15

            There are no bond kings in this environment (short):

            http://www.pragcap.com/there-are-no-bond-kings-in-this-bond-market/

GLD rose, ending above its 100 day moving average and within short term and intermediate term uptrends.

Bottom line:  with all trends up, the focus is now on the upper boundaries of the indices’ long term uptrends (19481/2246).  While I think that a challenge will likely come immediately, I don’t think it will be successful.

    Fundamental

       Headlines

            Only one minor economic datapoint yesterday: the July housing market index fell short of expectations.  No overseas stats.

            ***overnight, the UK inflation rate rose in June; July German economic sentiment declined precipitously; the high EU court ruled in favor of EU guidelines on bank bailouts (meaning Italy’s current plan is illegal).

            Still investors had a lot to focus on: an attempted coup in Turkey, a breakdown in civil order in Venezuela (and the US?), the Bastille Day terrorist attack, more dovish statements from FOMC members despite three weeks of dramatically improvements in US economic data and problems in the Italian banks.  And they loved everything. 

Resolving the Italian bank problem (medium):

            http://www.nakedcapitalism.com/2016/07/will-italian-banks-tear-down-europe.html

Bottom line: it seems like no amount of bad news can damage investor euphoria.  So there is little point in belaboring the fundamentals.  Until bad news is perceived as bad news, stock prices are going up.  Helping out---there is no technical resistance between current levels and the upper boundaries of the Averages long term uptrends---about 4-5% upside.  Enjoy.

            Peter Lynch’s track record revisited (medium):

            http://awealthofcommonsense.com/2016/07/peter-lynchs-track-record-revisited/?curator=thereformedbroker&utm_source=thereformedbroker

            The latest from John Mauldin (skip the part about Turkey):

            http://www.advisorperspectives.com/commentaries/20160716-mauldin-economics-the-age-of-no-returns

            My thought for the day:  last week I focused on some investor habits that get them in trouble, especially in periods in which emotions (fear and greed) are running high.  Today, I add another---herding, that is, an individual’s inclination to believe and do what everyone else is believing and doing.  It happens because it is comfortable and because even if it is wrong, no one is going to criticize you.  I remember back in the early 70’s, I was working for a large investment counseling firm and I bought a couple of gold stocks for my clients.  My boss went ape shit.  He couldn’t fundamentally argue why this was a bad decision.  His position was basically (1) it was better to lose money in IBM because everyone else would lose money, so there would be no blame and (2) if I was right, it would make everyone else [in the firm] look stupid.   So I sold the gold stocks and we all lost money in IBM.  

      

       Investing for Survival

   

            Retirees have a spend down problem.

            http://www.advisorperspectives.com/commentaries/20160712-real-investment-advice-retirees-may-have-a-spend-down-problem

           

    News on Stocks in Our Portfolios

 

Johnson & Johnson (NYSE:JNJ) declares $0.80/share quarterly dividend, in line with previous.

Johnson & Johnson (NYSE:JNJ): Q2 EPS of $1.74 beats by $0.06.

Revenue of $18.48B (+3.9% Y/Y) beats by $500M

International Business Machines (NYSE:IBM): Q2 EPS of $2.95 beats by $0.06.

Revenue of $20.24B (-2.7% Y/Y) beats by $210M.

W.W. Grainger (NYSE:GWW): Q2 EPS of $2.89 misses by $0.28.

Revenue of $2.56B (+1.6% Y/Y) misses by $20M

Philip Morris (NYSE:PM): Q2 EPS of $1.15 misses by $0.05.

Revenue of $6.65B (-3.1% Y/Y) misses by $120M

Economics

   This Week’s Data

            The July housing market index came in at 59 versus expectations of 61.

            http://www.advisorperspectives.com/dshort/updates/Housing-Market-Index

            June housing starts rose 4.7% versus estimates of up 0.5%.

   Other

            More on helicopter money (medium):

            http://econbrowser.com/archives/2016/07/helicopter-money

            Quote of the day (short):

            http://cafehayek.com/2016/07/bonus-quotation-of-the-day-118.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CafeHayek+%28Cafe+Hayek%29

Politics

  Domestic

  International War Against Radical Islam

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