The Morning Call
The Market
Technical
The
indices (DJIA 15520, S&P 1685) meandered another day, awaiting the
data/news flow that will start today with the release of the statement from the
current FOMC meeting and the second quarter GDP
number. The Dow remained within its
short term trading range (14190-15550).
The S&P finished within its short term uptrend (1603-1759), although
it once again closed below the upper boundary of its former short term trading
range (1687). The Averages remain out of
sync on their short term trends.
However, they
finished within their intermediate term (14476-19476, 1536-2124) and long term
uptrends (4918-17000, 715-1800).
Volume was up
fractionally; breadth was mixed. The VIX
was unchanged, remaining within its short term trading range and its
intermediate term downtrend.
GLD declined,
closing below the lower boundary of that developing very short term uptrend
(not good) and within its short and intermediate term downtrends.
Bottom line: the
challenge of the 15550/1687 went nowhere again yesterday. I am sure that Monday and Tuesday’s
directionless market was largely a function of investors sitting on the
sidelines awaiting the statement from the FOMC meeting as well as the latest
readings on second quarter GDP , the ISM
manufacturing index and nonfarm payrolls.
It would surprise me if, by the close Friday, the technical picture was
as uncertain as it currently is.
If stocks move
to the upside, my focus will shift to the upper boundaries of the three major
trends (S&P short term---1757, intermediate term---2124, long term
---1800).
If stocks
release to the downside, I will likely invalidate the S&P’s re-set to a
short term uptrend. That will leave both
of the indices in trading range and back in sync.
Sentiment
survey (medium):
Fundamental
Headlines
Yesterday’s
economic news was again inconclusive: weekly retail sales were mixed, the May
Case Shiller home price index was a little below consensus on a month over
month basis but were quite strong year over year, the July consumer confidence
index was weaker than expected.
The Case Shiller
numbers got most of the attention; and if you watched the video I posted of the
interview with Robert Shiller, you know most of the chatter was around the
issue of ‘bubbles’. You also know that I
am very sympathetic to this point of view---which, all other things being equal,
would not be a plus for equities except perhaps in the very short term.
Bubbles and
market crashes forever (medium):
In other news, Japan ’s
industrial production was down 3.3% and household spending also declined. Barclay’s ‘discovered’ a L12 billion ‘hole’ in
its balance sheet and JP Morgan (our fortress bank), was accused of gaming
energy bids.
Banks,
once again too big to fail (short):
Fed
policy mainly benefits foreign banks (medium):
Bottom line: all
eyes will be on the FOMC meeting and three primary macroeconomic indicators
that will be released between now and Friday.
If the Fed states its intention of maintaining QEInfinity into the
foreseeable future, that will likely be positively received by
investors---though I consider it a negative for the simple reason that the
further the Fed gets out on the QE limb, the worse the outcome will be.
The economic
numbers could potentially have an impact on our Models---if for example, the GDP ,
ISM and nonfarm payroll numbers were all blow outs, suggesting that the economy
may be strengthening more than I expect.
Of course, the reverse would also be true. That said, in the absence of any great
surprises, my bottom line is unchanged: equities are overvalued; and our
Portfolios will continue to use any price strength (i.e. stocks trading into
their Sell Half Range) to lighten their equity exposure.
A
debate on the attractiveness of muni bonds (medium):
Investor
funds flows (short):
Market
perception versus reality (medium):
Where
is ‘tapering’ being priced into the markets? (short/medium):
The
latest from Marc Faber (medium):
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