The Morning Call
8/3/16
I am having minor surgery today;
but I will under a general anesthetic and I am not sure of the pain level
afterwards. Doctors always tell the
worst case just so they look good when you don’t feel so bad. The point being that I am not sure how
thorough tomorrow’s Morning Call will be.
The
Market
Technical
The indices
(DJIA 18313 S&P 2157) fell below their recent tight trading ranges yesterday. Volume was up but not that much; breadth
continued weak. The VIX jumped another 7
½%, closing back above the lower boundary of its former short term trading
range. I remain on the fence on this
directional call. I would note that on Monday it made a higher
low---a possible sign that the lows have been made.
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 {17430-19176}, [c]
in an intermediate term uptrend {11277-24107} 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 {2041-2280},
[d] in an intermediate uptrend {1912-2514} and [e] in a long term uptrend
{862-2246}.
The long
Treasury dropped another 1%, ending above its 100 day moving average and well
within very short term, short term, intermediate term and long term uptrends. However, it has made a lower high, a sign of
a loss of upward momentum. Plus fixed income securities across the board are
suffering declines.
GLD was up,
ending above its 100 day moving average and within very short term, short term
and intermediate term uptrends. In
addition, it is approaching a key Fibonacci level which happens to coincide
with the recent high,
And
(medium):
Bottom
line: the indices finally broke of their
recent very tight trading range.
Unfortunately, it was to the downside.
That said, breadth has been weak of late, so a Market decline is not
surprising. I don’t think that this has
any implications for further downside; though clearly the Averages could a lot
more and not even challenge their short term uptrends.
I remain
bothered by the simultaneous volatility in the VIX and the bond, gold, oil and
currency markets. Something seems amiss.
Cash
on the sidelines (short):
Fundamental
Headlines
Yesterday’s
US economic data was mixed: month to date retail chain store sales were disappointing,
July vehicle sales were slightly ahead of expectations while June personal
income was less than anticipated and personal spending was more (the last two
being primary indicators).
Overseas,
July UK construction activity declined; the Japanese government provided a few
more details on the muddled fiscal program that it announced last week and they
were not well received.
***overnight,
the July UK services PMI declined.
That
is not all that was distressing investors as EU banks stocks got hammered in
the wake of the last week’s Casper Milquetoast ‘stress’ test.
Further, the narrative continued
that started last week focusing on the lack of meaningful action (i.e. more QE)
during the meetings at the Fed, the BOJ and the ECB in the face of weak
economic data.
The ultimate backstop
(medium):
The
unhappy ending of QEInfinity (medium):
Bottom
line: the economies both here and abroad
are struggling. But even if they weren’t,
it would make little difference with respect to Market overvaluation. Stocks
are very expensive by almost any fundamental metric; and a ten percent
correction won’t solve that problem.
The single most
important factor sustaining current valuations is the unquestioning faith the
Markets have in the central banks’ ability to continue to push prices even
higher. It is possible that this
proposition could become an eternal truth; but I doubt it for no other reason than
that all good things must come to an end (and logic).
Stocks are
grossly overvalued. Investors should
accept as a gift the current opportunity to take some money off the table, be
it from banking some profits from winners or getting rid of their losers.
Earnings season update: two
thirds of the S&P companies have reported; 71% beat profit expectations,
57% beat revenue forecasts.
More
on valuation (short):
Five
questions for the bulls (medium):
The
latest from Doug Kass (medium):
My
thought for the day: for most investors, pursuing an investment that requires
someone else to lose for them to win is not a good use of their time or money. Over the long run, stocks and bonds have generated
positive returns, making money for everyone invested in them. However, options (derivatives) are a zero sum
game---somebody has to lose for the investor to win. That is a much more difficult strategy for consistently
making money than one in which everyone wins.
Investing for Survival
This
article is only for those who like to get in the weeds of economic theory. It is a synopsis of Hyman Minsky’s theory
that stability breeds instability (medium):
News on Stocks in Our Portfolios
Revenue of $1.48B
(-12.4% Y/Y) misses by $40M.
Ecolab
(NYSE:ECL): Q2 EPS of $1.08 in-line.
Revenue of $3.32B (-2.1% Y/Y) in-line
.
Automatic Data Processing (NASDAQ:ADP)
declares $0.53/share quarterly dividend, in line with previous.
Economics
This Week’s Data
Month
to date retail chain store sales grew less than in the prior week.
July
vehicle sales came in at 17.9 million units versus expectations of 17.3 million;
but US automakers stock got whacked.
Weekly
mortgage applications fell 3.5% while purchase applications were down 2.0%.
The
July ADP private payroll report showed job gains of 7,000 versus estimates of a
decline of 7,000.
Other
A
thought provoking take on low interest rates (short):
Politics
Domestic
Update on
Obamacare (medium):
Update on
student loans (short):
David Stockman
on violence in the US (medium):
International War Against Radical
Islam
US
airlifts $400 million to Iran (medium):
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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