The Morning Call
7/6/16
The
Market
Technical
The indices
(DJIA 17840, S&P 2088) fell back from a third lower high. Volume rose;
breadth weakened. The VIX was up 5 ½%, but
remained below its 100 day moving average.
It is still within a short term trading range with the big
question---will it challenge the lower boundary of that range for a sixth time.
The Dow closed
[a] above its rising 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] within its short term trading range
{17498-18726; it had confirmed a break of this boundary last week, but bounced
dramatically the following day. So I reset
the trend back to a trading range, [c] in an intermediate term trading range
{15842-18295} 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] within its short term trading
range {2037-2110}, [d] in an intermediate term trading range {1867-2134} and
[e] in a long term uptrend {830-2218}.
The long
Treasury was up another 1.3%. It is now above
its 100 day moving average and well within very short term, short term,
intermediate term and long term uptrends.
GLD was also strong,
ending above its 100 day moving and within short and intermediate term
uptrends. Next resistance is the upper boundary
of its long term downtrend; now at circa 139.
Bottom
line: after last week’s sharp rally, both
of the Averages are back within trading ranges.
Importantly, they have now made two lower highs which suggests that the
upside momentum, while still there is starting to weaken.
I am still paying
particular attention to GLD. It has now
reset its short term and intermediate term trends to up and will likely
challenge its long term trend. If that
is successful, 175 is the next resistance level.
Fundamental
Headlines
Only
one US datapoint was reported yesterday---May factory orders were down 1.0%;
but that was expected.
Overseas, the
news was better---both the June UK composite flash PMI and the June China
Markit service PMI were stronger than forecast.
Nevertheless, looking forward the EU could see weakness coming from the
impact of the Brexit and the growing crisis in the Italian banking system.
Europe’s
Lehman moment (medium):
***overnight,
May German factory orders were flat with April.
Bottom
line: the good news is that the US economy may be stabilizing. The bad news is that (1) Europe continues to
push toward recession and the aforementioned problems will only make things
worse and (2) as computed by our Valuation Model, stocks reflect an ‘everything
is awesome’ scenario which I judge to be high unlikely.
The
latest from Bill Gross (must read):
Given
the current price levels, it is an excellent opportunity to sell a portion of your
winners and all of your losers.
My
thought for the day: I have covered this subject before, but with interest
rates plunging I thought it appropriate to issue a brief reminder that reaching
for yield is one of the primary mistakes made by investors.
Remember
that the fixed income portion of your portfolio is supposed to be your safe
money; so your objective should be to insure the return of your money before
worrying about the return on your money.
There are three common ways to chase
yield: (1) buy longer term bonds, (2) buy lower quality, i.e. riskier bonds or
(3) use leverage. I understand the
motivation to employ one of these strategies.
But it is not worth the risk that you are taking if things go awry. Just ask all those guys that were buying
mortgage backed securities in 2006.
There is no such thing as a
free lunch.
The
latest from John Hussman (medium):
Update
on valuation:
Investing for Survival
The
downside of past performance:
News on Stocks in Our Portfolios
Economics
This Week’s Data
May
factory orders fell 1.0%, in line.
The
May US trade deficit came in at $41.1 billion versus estimates of $40.0
billion.
Weekly
mortgage applications rose 14.2% while purchase applications were up 4.0%.
Other
Three
of UK’s largest property funds suspend redemptions (medium):
Politics
Domestic
International
First
round of voting for Tory leadership just completed (medium):
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for Survival’s website (http://investingforsurvival.com/home)
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