Thursday, June 27, 2013

The Morning Call---Troubles in Europe

The Morning Call

6/27/13

The Market
           
    Technical

            The indices (DJIA 14910, S&P 1603) had another good day, closing within their intermediate term (14244-19244, 1508-2096) and long term uptrends (4783-17500, 688-1750)..  Nevertheless, they remain below the downtrend off the May 22 high (current intersects: 15294, 1642) as well as their 50 day moving averages (15019, 1618) and are in search of  lower boundaries for new short term trading ranges (14190 [?]-15550, 1576 [?]-1687).

            Volume was flat; breadth was mixed.  The VIX fell, finishing within its intermediate term downtrend.  It has yet to mark an upper boundary of a new short term trading range.

            GLD continues to get crushed, destroying boundaries of all major trends.  Nothing to do here.

Bottom line: the last two day rebound notwithstanding, nothing in the charts of either the Averages or the stocks in our Universe suggest that the short term correction is over; although clearly on an intermediate and long term basis the trend is up.  The answer that I am waiting for is whether the Averages set up a short term trading range or challenge the intermediate term uptrend.  There is little to do at this point until we get that answer.  That said, if any of our Portfolio holdings trade into their Sell Half Range, our Portfolios would take the opportunity to act accordingly.

            An update on sentiment (medium):

    Fundamental
    
     Headlines

            If Tuesday was a positive news day, Wednesday was negative.  Two US economic releases were not great---weekly mortgage applications fell although the more important purchase applications were up and the revised first GDP growth rate was reported up considerably less than expected.  However, it was not that out of line with our forecast; so I am not concerned.

            Overseas, we got the first inkling of a fiscal problem in Italy, as a newspaper reported that the government was going to take a loss of up to E6 billion on a derivative investment.  If it occurs, that is not going to help our ‘muddle through’ scenario.

            More on problems in Italy (medium):

            The wear and tear of governing in southern Europe (medium):
            http://www.zerohedge.com/node/475731

Bottom line: yesterday was a counterweight to Tuesday’s pin action.  On Tuesday, we got great economic news and stocks limped up; yesterday, the GDP number was well below expectations and prices were strong. 

Some pundits have suggested that a portion of yesterday’s strength could be  attributed to end of quarter window dressing by the funds.  On the other hand, I can’t ignore that equity prices rising strongly on bad economic news (the GDP report), i.e. bad news is good news because it means more QE,  calls into question the validity of my thesis that investors know that the Fed knows that it is playing a risky game (creating asset bubbles) and the price of admission is significantly higher than thought last Tuesday.

            Of course, one day’s price action doesn’t prove or disprove anything; but yesterday’s Market performance certainly illustrates why one must always be open to being wrong.   That said, the economic data continue to support our Valuation Model’s Year Fair Value of S&P 1440; and that suggests there is more downside risk, whatever the reason.

            China tries to teach the US a lesson (medium and today’s must read):

            The uncertainties of the Fed’s bubble (short):

            ***over night, France’s budget deficit grows well above mandated level and its banks now head the list of EU’s most highly levered (medium):

The EU has made the Cyprus template (depositors share in bank losses) its template (medium).

            And the Peoples’ Bank of China said it would provide liquidity but maintain its tightening bias (medium):

     Investing for Survival

            Using money to buy happiness (medium):




Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at

No comments:

Post a Comment