Tuesday, July 26, 2016

The Morning Call--Peak irony

The Morning Call

7/26/16

The Market
         
    Technical

The indices (DJIA 18493, S&P 2168) drifted lower yesterday.  Volume fell and breadth weakened.  The VIX surprisingly bounced 7%, closing back above the lower boundary of its former short term trading range.  Remember the VIX challenged that trend, reset, then bounced back the lower boundary, sold off again and now has regained that level.  Bottom line: I don’t think the break of the short term trading range can be confirmed until there is sustained follow through.

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 {17343-19093}, [c] in an intermediate term uptrend {11260-23990} 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 {2030-2269}, [d] in an intermediate uptrend {1907-2509} and [e] in a long term uptrend {862-2246}. 

The long Treasury was down fractionally, though it seems to have stabilized after a couple of tough weeks.  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 was down 0.7%, but remained above its 100 day moving average and within very short term, short term and intermediate term uptrends.  However, it ended below the lower boundary of a very short term uptrend.

In last weekend’s Closing Bell, I mentioned the potential breakout of the dollar above the upper boundary of its short term downtrend.  Yesterday, it fell back below that trend line, negating the break.

Bottom line:  like all consolidations in the recent Market run up, yesterday’s sell off was mild.  That said, the recent volatility of the VIX is a bit confusing and does raise questions over the underlying momentum in prices.  Still, as I noted above, until the VIX confirms a trend, my assumption remains that stocks are headed for a challenge of their long term uptrends.

    Fundamental
       
       Headlines

            One US datapoint was reported yesterday: the July Dallas Fed manufacturing index fell less than expected.  Overseas, it was a similar story: June Japanese exports and imports declined but less than forecast and July German business sentiment declined less than anticipated.

            The G20 meeting is over and I think that I can sum it up in one word: ‘Nothing’.

            While yesterday was slow, as I noted in the Morning Call, this will be a busy week---lots of earnings reports and the Fed and Bank of Japan meet.  Plus the dollar is challenging its short term downtrend and crude oil is starting to get smacked around again.  That doesn’t mean that there will be any surprises but certainly the potential exists. 

            Bottom line: valuation is so overextended, the only reasonable strategy at this point is use the current strength to pare back your big winners and get rid of any losers.

            Lowering expectations (short):

                The prospects for future dividend growth (medium):

                Don’t do the easy thing (medium):

            My thought for the day is directed at traders.  It comes from Edwards and McGee:

‘If we can learn from the charts at what points to buy and under what conditions to sell, we have acquired the basic machinery for successful trading.  On the other hand, obviously, if your buying and selling are at points which more often than not result in net losses, then it makes no difference how you divide up your capital or apply it to the market, for it will be bound to shrink until, eventually, it has all disappeared.’

           Investing for Survival
   
            Ten decisions that will help you plan for retirement.
           
    News on Stocks in Our Portfolios
 
Economics

Canadian National Railway (NYSE:CNI): Q2 EPS of C$1.11 beats by C$0.07.
Revenue of C$2.84B (-9.0% Y/Y) beats by C$580M


Canadian National Railway (NYSE:CNI) declares C$0.375/share quarterly dividend, in line with previous.

T. Rowe Price (NASDAQ:TROW): Q2 EPS of $0.76 beats by $0.03.
Revenue of $1.05B (-1.9% Y/Y) beats by $20M


Caterpillar (NYSE:CAT): Q2 EPS of $1.09 beats by $0.13.
Revenue of $10.34B (-16.1% Y/Y) beats by $280M


MMM (NYSE:MMM): Q2 EPS of $2.08 beats by $0.01.
Revenue of $7.67B (-0.3% Y/Y) misses by $40M


United Technologies (NYSE:UTX): Q2 EPS of $1.82 beats by $0.14.
Revenue of $14.87B (+1.2% Y/Y) beats by $200M.


McDonald's (NYSE:MCD): Q2 EPS of $1.25 misses by $0.13.
Revenue of $6.27B (-3.5% Y/Y) in-line

   This Week’s Data

            The July Dallas Fed manufacturing index came in at -1.3 versus expectations of -12.0       

   Other

            Stephen Roach on free trade (medium):

            CEO’s are overpaid (medium):

            Update on the subprime auto loan market (medium):


Politics

  Domestic

Quote of the day (short):

Peak irony (short and a must read):

  International War Against Radical Islam


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