The Morning Call
7/20/16
The
Market
Technical
The indices
(DJIA 18559, S&P 2163) turned mixed yesterday (Dow up, S&P down). Volume remains puny, breadth strong. The VIX (11.9) closed below the lower
boundary of its short term trading range for the third day, resetting to a downtrend. It 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{11238-23968} 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 {1903-2505} and [e] in a long term
uptrend {862-2246}.
The long
Treasury was up slightly, continuing to trade above its 100 day moving average
and well within very short term, short term, intermediate term and long term
uptrends.
GLD rose, ending
above its 100 day moving average and within short term and intermediate term
uptrends and a developing very short term uptrend.
Bottom
line: with stocks in overbought
territory, some backing and filling is to be expected. However, 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.
Fundamental
Headlines
Yesterday’s
US economic data were mixed: June housing starts and building permits (primary
indicator---so really the day was a positive) were strong though month to date
retail chain store sales were soft.
Overseas, the
numbers were mixed: the June UK inflation rate was higher than anticipated
while the July German and EU indices of economic sentiment fell short of
expectations.
S&P
cut Deutschbank’s credit outlook (medium):
And
finally, the EU highest court ruled in favor of EU bank bailout guidelines
which will hamper the current Italian government’s efforts to fix its banking
system.
***overnight,
UK unemployment was the lowest since 2005.
Bottom
line: the US economy may be stabilizing but the global economy isn’t even
close. But none of this matters because
investors are interpreting any news as good news. That keeps stocks moving to ever higher record
valuations and seem likely to continue to do so. My strategy remains to focus on lightening up
on stocks trading into their Sell Half Range and eliminating losers.
My
thought for the day: staying with the theme of cognitive mistakes most
investors is their proclivity to prefer narrative to data. Don’t get me wrong, all investment strategies/concepts
include a narrative because it makes the strategy/concept more easily
understood. The problem is when the data
is ignored/overlooked because the narrative is more appealing. For example, the narrative to buy General
Mills because its business is relatively immune to economic downturns hence it
is a less risky investment even if it is selling at an historically
unprecedented high valuation. It is like
my story yesterday regarding IBM. The narrative
is that GIS/IBM is a great company, so I will ignore the valuation numbers.
The
latest from Doug Kass (short):
The
correlation between dividend growth and price performance (short):
Valuation
fallacies (medium and today’s must read):
Investing for Survival
You
can lie to yourself only so long.
News on Stocks in Our Portfolios
Revenue of $3.9B
(-1.0% Y/Y) misses by $70M
Revenue of $22.6B
(+1.9% Y/Y) beats by $460M
Economics
This Week’s Data
Month
to date retail chain store sales grew less than in the prior week.
Weekly
mortgage applications fell 1.3% while purchase applications were down 2.0%
Other
Politics
Domestic
If Jamie Dimon
was in jail, this wouldn’t be an issue (medium):
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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