The Morning Call
8/4/15
The
Market
Technical
The indices
(DJIA 17598, S&P 2098) fell yesterday.
The Dow is [a] below its 100 and 200 day moving averages, both of which
now represent resistance, [b] below the lower boundary of its short term
uptrend for the second day; if it finishes there today, it will re-set to a
trading range, [c] in an intermediate term trading range {15842-18295} and [d]
in a long term uptrend {5369-19175}. The S&P closed right on its 100 day
moving average and is in uptrends across all timeframes (2093-3072, 1878-2644,
797-2145).
Volume fell;
breadth was negative. The VIX was up,
but is still below its 100 day moving average and remains within a short term
trading range, an intermediate term downtrend and a long term trading range.
The long
Treasury was up, closing above its 100 day moving average and the upper boundary
of its short term downtrend. If it ends
there today, the 100 day moving average will revert from resistance to support
and the short term downtrend will re-set to a trading range. It remains within a very short term uptrend.
GLD was down,
remaining below its 100 day moving average and in downtrends across all
timeframes.
Oil was down 4%,
finishing below its 100 day moving average and within short and intermediate
term downtrends. The dollar lifted, remaining above its 100 day moving average
and within short and intermediate term trading ranges.
Bottom line: the
Averages are now well out of sync which only adds to the questionable technical
picture created by the growing divergences within numerous measures of Market
strength and breadth. It is still too
early to declare that a Market top has been made but clearly there needs to be
some reversal of the damage done by recent deterioration or it won’t be long
till that occurs. For the moment,
patience.
Fundamental
Headlines
It
was an unusually busy Monday for economic data: June personal income and July light
vehicle sales were above consensus; the July ISM manufacturing index and June
construction spending were below; and June personal spending and the July
Markit PMI were in line. They are all
important indicators and in total they were mixed. So nothing to disturb our forecast.
In
addition, Puerto Rico defaulted on another bond issue (medium):
Overseas,
the July Markit PMI of the EU was better than estimates while the Chinese PMI
was below. In other news, S&P
lowered the EU’s credit rating; and China suspended stock trading (i.e.
selling) privileges of Citadel, a US hedge fund.
S&P
lowers EU credit rating (short):
***overnight, the Chinese government
imposed additional restrictions on short sellers and July UK construction
spending declined.
Bottom line: the
US dataflow continues to reflect an economy struggling to achieve a level of
growth that just matches that of the recovery since 2009---which has been weak
relative to the secular growth rate of recent decades. While there is no reason to panic over such a
development, there is cause to review forecast earnings (the E part of P/E).
In addition, (1)
it is becoming increasingly obvious that the Fed is in an economic box of its
own making and with no good policy choices to extract itself, (2) China’s
bureaucrats are having a tougher time controlling stock selling than investors
originally assumed, (3) and that says nothing about the state of that country’s
economy which, even with the government’s management of economic reports, is
looking very iffy and (4) the Greek tragedy may have a fourth act.
I continue to believe
that the key investment strategy today is to take advantage of the current high
prices to sell any stock that has been a disappointment or no longer fits your
investment criteria and to trim the holding of any stock that has doubled or
more in price.
Update
on valuation (medium):
Commodity
prices and earnings per share (short):
Outlook
for emerging markets (medium):
Economics
This Week’s Data
The
June ISM manufacturing index came in at 52.7 versus expectations of 53.7.
The
July Markit PMI was reported at 53.8, in line.
June
construction spending rose 0.1% versus estimates of +0.6%.
July
light vehicle sales were slightly above forecasts.
Other
Recession
indicators (short):
Politics
Domestic
The downside to
Obama’s new energy initiative (medium):
International
Americans
on the Iran deal (short):
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