The Morning Call
The Market
Technical
The
indices (DJIA 15509, S&P 1752) just won’t stay down. Yesterday, the Dow closed near the upper
boundary of its short term trading range (14190-15550), while the S&P
finished within its short term uptrend (1691-1845). The Averages remain out of sync on a short
term basis.
Both of the
Averages are within their intermediate term uptrends (15129-20129, 1609-2191)
and long term uptrends (4918-17000, 715-1800).
Volume was flat;
breadth was neutral. The VIX ended near
the lower boundary of its short term trading range. A breach of that boundary would be a plus for
stocks. It also closed within an
intermediate term downtrend.
The long
Treasury dropped, finishing within its short term trading range and its
intermediate term downtrend. It is
developing a reverse head and shoulders pattern which if fulfilled would bode
well for lower rates.
GLD was up
again. At the close, it confirmed the
break of the very short term downtrend which now re-sets to a very short term
uptrend and negates the developing head and shoulders pattern---both
positive. Having bitten (bought GLD) on
the last break above the upper boundary of its very short term downtrend, I am
going to exercise a bit more caution this time.
It continues to trade below the upper boundaries of its short and
intermediate term downtrends.
Bottom
line: the technical key short term is
whether or not the Dow breaks above the upper boundary of its short term
trading range. It is getting support from
higher gold and bond prices (lower interest rates) as well as lots of money for
nothing and a positive seasonal calendar. If that occurs, stocks could be setting up for
another euphoric push higher.
Nevertheless,
the Averages are out of sync on a short term basis---a condition that
encourages remaining on the sidelines. Plus
the Market is extremely overbought.
If equities move
up in price and any of our stocks trade into their Sell
Half Range
Charts
to make you feel uneasy (short):
Indices
at market highs (short):
S&P
deviation from its long term moving average is now at extremes in both
magnitude and duration (short):
Fundamental
Headlines
Overseas, the
Chinese PMI was ahead of forecasts while the
EU PMI ’s were mixed. Two things:
(1)
the Chinese number tends to support the notion that the
Chinese central bank could be tightening---and it took additional such steps
Wednesday overnight. That said, the intent of the Chinese central bank is not
known.
(2)
I had expected a little better performance from the EU PMI ’s. I don’t think that this invalidates the trend
to an EU recovery; but it is something to watch.
Bottom line: nothing
in the US data
flow, fiscal or monetary policy or the current valuation metrics point to
stocks being attractively valued.
Indeed, in most cases, the opposite is true. Certainly, an improving Chinese economy is a
plus but only if it doesn’t prompt the Chinese central bank to slam on the
monetary brakes. Europe
is still a plus though the latest data gives me pause and Draghi’s bank stress
test plan could potentially cause heartburn.
In the end, as to reasons to buy stocks, there is just no there,
there---other than investor euphoria over QEInfinity. And that seems a thin reed on which to hang
the preservation of your capital.
Technically, the Market could be setting
up for a trade to the upside (assuming the Dow can break out of its trading
range); but that strategy works only for the strong of heart and fleet of foot.
The most important information on which I
wait are the signs of how the last three weeks have impacted business and
consumer confidence.
The
conduct of monetary policy by Kevin Warsh (medium):
Why
QE harms an economy in the long run (medium):
How
frothy can it get (medium):
More
from Lance Roberts (medium):
Small
cap growth stocks are getting stretched in value (medium):
Update
on the earnings ‘beat’ rate (short):
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