The Morning Call
7/14/15
The
Market
Technical
The indices
(DJIA 17977, S&P 2099) roared again. The S&P closed above its 100 day moving
average, while the Dow was right on its moving average; both having voided
breaks of their short term uptrends.
Longer term, the
Averages are in uptrends across all timeframes: short term (17565-20389, 2070-3049),
intermediate term (17773-23905, 1861-2629) and long term (5369-19175, 797-2145).
Volume fell
(just as it did on Friday’s strong up day); breadth was mixed. Unsurprisingly, the VIX plunged 18%, taking it
back below its 100 day moving average.
Finishing at 13.90, it is again near to levels (below 13.0) at which it
represents value as portfolio insurance.
The long
Treasury was down again, finishing below its 100 day moving average and the
upper boundary of its short term downtrend.
GLD declined,
closing below its 100 day moving average and the neckline of the head and
shoulders formation and very near the lower boundary of its intermediate term
trading range.
The dollar rose slightly,
ending right on its 100 day moving average and near the upper boundary of its
very short term downtrend. Oil was down
1%, finishing below its 100 day moving average and near the lower boundary of
its short term trading range.
***overnight,
the US and Iran reached a deal on Iran’s nuclear program. Oil prices are falling (medium):
Bottom line: the
bulls probably couldn’t be happier. The indices
challenged their 200 day moving averages and the lower boundaries of their
short term uptrends and then made a dramatic recovery. That sets up the bulls to press the Averages through
their former highs (18295/2135) and the upper boundaries of their long term
uptrends (19175/2145); although the low volume and paltry breadth of this rally
makes me wonder just how much power the bulls have left in them. I am sticking with my thesis that the Averages
will be unable to successfully challenge the upper boundaries of their long
term uptrends.
Emerging
markets are in a bear market (short):
Fundamental
Headlines
One
US economic datapoint yesterday: the June US Treasury budget surplus was
reported slightly better than expected.
Overseas, June Chinese exports were up the first time in four
months---any good news has to help while the government is attempting to stabilize
its markets.
***overnight,
UK June inflation rate drops back to zero.
The
big news was the complete capitulation of the Greek government to the Troika
demands over the weekend. The Greek
parliament must approve this agreement by Wednesday. Assuming it does, it is not clear exactly
when Greece actually gets aid. So this
story still isn’t over though the odds of the can being kicked down the road
has increased. That said, I don’t
understand why the Greeks would basically assume the mantle of serfdom which in
the long run is apt to be more painful than a Grexit would be in the short term. Of course, what I don’t understand doesn’t
matter. At the moment, it appears that
the Greeks will accept the terms offered by the Troika and the rest of the
world seems happy with that outcome.
Why
the Greek debt is a problem (medium):
Why
this latest plan won’t work (medium):
Greece
loses control of its banks (medium):
***overnight,
not surprisingly, Tsipras faces open rebellion within his party
In
addition to the better trade number, it also appears the Chinese government has,
for the moment, managed to quell the panic in its securities markets. To its
credit, it re-opened trading in some 400 stocks. On the other hand, it continued its attacks
on ‘illegal sellers’. Maybe the
government will be able to successfully browbeat the masses into a revival of a
bull market. I have my doubts. But we have never seen this attempted before,
so it would foolish assume that I know the outcome. However, I personally will err on the side of
caution.
A
look at the leverage in the Chinese market (medium):
***overnight,
Chinese markets drift lower---but not by much.
Finally,
while there was no news on the Puerto Rican debt problem, it is not going away. Thus chart makes that abundantly clear
(short):
***overnight,
the Puerto Rican government now meeting with investors.
Bottom line: last
Friday’s bottom line is as good as any: ah, a new day is dawning. The Greek bailout is solved and the Chinese
market is rallying. Maybe. In my opinion, it is debatable whether any
deal based on the submitted proposal is a win for the Greeks. Yes in the short run, it keeps them on life
support and some of the measures being forced on them are necessary; but
without debt relief, the country is still f**ked. As for China, how do you have a functioning
capital market when investors know that if they buy a stock, there is a chance they
will be put in jail for selling it?
In my opinion, if you are still 100%
invested, take advantage of any rally on the above good news and lighten your
positions. If you do and the Market soars
to new heights, it likely won’t be the worst investment decision that you have
ever made in your life. If you don’t and
stock prices mean revert, it may be in the top ten.
Economics
This Week’s Data
The
US ran a budget surplus in June of $51.8 billion versus expectations of $51.0 billion.
The
June small business optimism index came in at 94.1 versus estimates of 98.3.
June
retail sales were reported down 0.3% versus forecasts of up 0.3%; ex autos the
number was down 0.2% versus consensus of up 0.6%.
Other
Politics
Domestic
Oh, no, what is
the global warming crowd going to say now (short):
International War Against Radical Islam
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