Wednesday, July 27, 2016

The Morning Call--Waiting on the Fed

The Morning Call


The Market

The indices (DJIA 18473, S&P 2169) drifted quietly again yesterday (Dow down, S&P up).  Volume was up a tiny bit and breadth continued to weaken.  The VIX was up another 1.5%, closing for the second day back above the lower boundary of its former short term trading range.  Two days hardly represent follow through; but it is a start.  I remain unwilling to make a direction call on this indicator.

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 up, continuing to stabilize.  It ended above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends. 

GLD was up, remaining above its 100 day moving average and short term and intermediate term uptrends.  However, it finished below the lower boundary of a very short term uptrend for a second day, negating that trend.  Clearly not a plus.

Bottom line:  after another very quiet day, my bottom line is unchanged: ‘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.’



            Yesterday was big for US economic data: month to date retail chain store sales, June new home sales (primary indicator), July consumer confidence and the Richmond Fed manufacturing index were above consensus, while the May Case Shiller home price index and the July Markit flash services PMI were less than expected.  So this week is off to a good start.  Not to be repetitious, but an improving US economy is the only thing out there that could have a potential positive impact on valuations---but based on the dataflow pattern of the last two years, it is too soon to let it alter our forecast.

            Overseas, there were no stats; but (1) the G20 wrapped up a meeting, the results of which were meaningless and (2) the Japanese stimulus plan expected to be put forth on Friday was leaked in several versions---one more dovish and one less dovish than has been anticipated.  In addition to recommending ‘helicopter’ money to the Japanese, maybe Bernanke also counseled one of our Fed’s favorite policies---confused the sh*t out of them to mask you own incompetence. That makes 0 for 2 for the bureaucrats.  Today, we get the big daddy of them all---our own beloved Fed.

            Meanwhile, the Italian banking crisis appears to be coming to a head (medium):

            And things aren’t getting any better at Deutschebank (medium):

            However, Citi’s macro surprise index is surging---so what excuse will Yellen use now? (short):

Bottom line: despite two sizeable M&A deals and a decent earnings season to date, equities seem to have lost momentum.  However, (1) they had reached a very overbought level, so some consolidation is to be expected; moreover, that consolidation so far has been very mild and (2) many investors have likely been on the sidelines awaiting today’s end of the FOMC meeting and its accompanying statement.

Of course, none of this really matters because stocks are so overvalued.  Even assuming the US economy is improving, it would have to be dramatic to alter our Valuation Model.  I continue to believe that the only reasonable strategy at this point is use the current strength to pare back your big winners and get rid of any losers.

            The latest from John Hussman (medium):

            My thought for the day comes from Charlie Munger: ‘I have said that in my whole life, I have known no wise person, over a broad subject matter who didn’t read all the time — none, zero. Now I know all kinds of shrewd people who by staying within a narrow area do very well without reading. But investment is a broad area. So if you think you’re going to be good at it and not read all the time you have a different idea than I do.’”

            Investing for Survival
            What is the right asset allocation for young investors?
    News on Stocks in Our Portfolios
Becton, Dickinson (NYSE:BDX) declares $0.66/share quarterly dividend, in line with previous.

Apple (NASDAQ:AAPL): FQ3 EPS of $1.42 beats by $0.04.
Revenue of $42.4B (-14.5% Y/Y) beats by $310M.

C. R. Bard (NYSE:BCR): Q2 EPS of $2.54 beats by $0.07.
Revenue of $931.5M (+8.3% Y/Y) beats by $16.28M.

C.H. Robinson Worldwide (NASDAQ:CHRW): Q2 EPS of $1.00 in-line.
Revenue of $3.3B (-7.0% Y/Y) misses by $130M

Boeing (NYSE:BA): Q2 EPS of -$0.44 beats by $0.48.
Revenue of $24.8B (+1.1% Y/Y) beats by $760M

General Dynamics (NYSE:GD): Q2 EPS of $2.44 beats by $0.13.
Revenue of $7.67B (-2.7% Y/Y) misses by $200M


   This Week’s Data

            Month to date retail chain store sales improved from the prior week.

            The May Case Shiller home price index fell 0.1% versus expectations of +0.4%.

            The July Markit flash services PMI came in at 50.9 versus the June reading of 51.3.

            June new home sales rose 3.4% versus estimates of up 1.6%.

            July consumer confidence was reported at 97.3 versus consensus of 96.0.

            The July Richmond Fed manufacturing index came in at 10 versus the prior reading of -7.

            Weekly mortgage applications fell 11.2% while purchase applications declined 3.0%.

            June durable goods orders dropped 4.0% versus forecasts of -1.3%; ex transportation, they were off 0.5% versus expectations of plus 0.3%.


            GAAP versus non GAAP earnings (medium):

            Quote of the day from Milton Friedman:
In the international trade area, the language is almost always about how we must export, and what’s really good is an industry that produces exports, and if we buy from abroad and import, that’s bad. But surely that’s upside-down. What we send abroad, we can’t eat, we can’t wear, we can’t use for our houses. The goods and services we send abroad, are goods and services not available to us. On the other hand, the goods and services we import, they provide us with TV sets we can watch, with automobiles we can drive, with all sorts of nice things for us to use.
The gain from foreign trade is what we import. What we export is a cost of getting those imports. And the proper objective for a nation as Adam Smith put it, is to arrange things so that we get as large a volume of imports as possible, for as small a volume of exports as possible.
This carries over to the terminology we use. When people talk about a favorable balance of trade, what is that term taken to mean? It’s taken to mean that we export more than we import. But from the point of our well-being, that’s an unfavorable balance. That means we’re sending out more goods and getting fewer in. Each of you in your private household would know better than that. You don’t regard it as a favorable balance, when you have to send out more goods to get fewer coming in. It’s favorable when you can get more by sending out less.


The corporate state (medium):

  International War Against Radical Islam

Visit Investing for Survival’s website ( to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

No comments:

Post a Comment