The Morning Call
7/22/16
The
Market
Technical
Well, at least
we know that stock prices can decline.
Yesterday the indices (DJIA 18517, S&P 2165) fell. Volume remains low,
breadth weakened slightly. The VIX (12.7)
bounced back to the lower boundary of a short term trading range that had reset
to a downtrend on Wednesday. As always
when a newly reset trend reverses and then challenges that reset, follow
through becomes key to direction. If the
VIX continues to rally, I will reinstate the short term trading range; if it
falls back the downtrend will remain.
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 {17317-19067}, [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 {2025-2264},
[d] within its intermediate term uptrend {1903-2505} and [e] in a long term
uptrend {862-2246}.
The long
Treasury rose slightly but on heavy volume.
It bounced off a key Fibonacci level and continued to trade above its
100 day moving average and well within very short term, short term,
intermediate term and long term uptrends.
GLD rose 1.5%, rebounding
off the lower boundary of a very short term uptrend and ending above its 100
day moving average and within short term and intermediate term uptrends.
Bottom line: yesterday’s decline is hardly an omen of
things to come. Momentum remains to the
upside; but (1) volume remains anemic and (2) the VIX could be putting in a low. Nonetheless, the onus is on the bears to
mount a strong follow through before there is any reason to think that the
Averages aren’t going to challenge the upper boundaries of their long term
uptrends.
Fundamental
Headlines
We
received most of this week’s US economic data yesterday: weekly jobless claims, the June Chicago
national activity index and June existing home sales were better than expected
while the July Philly Fed index was less and the June leading economic indicators
were in line.
Overseas,
UK retail sales declined while the Chinese suspended reporting several economic
indicators. In addition, the Draghi took
a page out of the Yellen playbook, delivering a ‘on the one hand, on the other
hand’ policy statement: rates were left unchanged but the narrative was much
less dovish than many expected but he hinted at the need for an Italian bank
bailout.
***the
July EU flash composite PMI declined but less than expected while the UK
composite was a disaster; the July Japanese manufacturing PMI rose slightly but
remained in negative territory.
Bottom
line: this week’s US economic data is ending on a positive note, keeping the ‘recovery’
narrative alive. Until that notion gets
challenged, the central banks slam on the brakes or some negative exogenous
event occurs, the path of least resistance for stock prices is to the
upside. That said, equities are in
nosebleed territory, so chasing prices at these levels is, in my opinion, only
for the strong hearted trader. Indeed,
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.
More
on valuation (medium and today’s must read):
My
thought for the day: even if you don’t
agree with me about current valuations, at least consider eliminating any
margin debt. Utilizing margin today
exhibits many of the biases I have been discussing of late: herding behavior,
recency bias and optimism bias.
Yes, you feel
all warm and fuzzy on the up days; but leverage cuts both ways. Bear markets historically are quick and
vicious. The window to sell stays open
for only a short time. You don’t want to
be on margin when this starts; and with all due respect, you are not smart
enough to know when it does.
Investing for Survival
Thinking
about how much you can tolerate to lose.
News on Stocks in Our Portfolios
Revenue of $7.2B
(-20.1% Y/Y) beats by $70M.
T&T
(NYSE:T): Q2 EPS of $0.72 in-line.
Revenue of $40.5B
(+22.7% Y/Y) misses by $130M.
Revenue of $2.45B
(-2.4% Y/Y) misses by $80M
Economics
This Week’s Data
June
existing home sales rose 1.1% versus expectations of being down less than 1%.
The
June leading economic indicators rose 0.3%, in line.
Other
Politics
Domestic
Update on
Obamacare (medium):
Quote of the day
(short):
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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