The Morning Call
The Market
Technical
The
indices (DJIA 13245, S&P 1428) had a roller coaster day, rising in early
trading but closing flat on day. The
S&P closed above the upper boundary of its short term trading range (1343-1424)
while the DJIA remains below its comparable level (12460-13302). As a reminder,
under our technical discipline, to confirm the break out of this range, both of
the Averages must do so. Further, they
continue to trade within the boundaries of the intermediate term uptrends
(12927-17927, 1365-1960).
Volume was flat, breadth was down. The VIX rose but remained below its 50 day
moving average (a positive for stocks) and between the upper boundary of its
short term downtrend and the lower boundary of its intermediate term trading
range.
Advance/decline
at new highs:
http://blogs.stockcharts.com/dont_ignore_this_chart/2012/12/nyse-ad-line-hits-new-high-nya-nyad.html
Gold
rose but is still trading below its 50 day moving average (a negative for GLD)
but above the lower boundaries of its short term uptrend and its intermediate
term trading range.
Bottom line:
yesterday had all the characteristics of a ‘sell on the news’ day---the news
being QEIV. On the other hand, the
S&P remains above the upper boundary of its hoer term trading range for the
second day; and both of the indices remain above their 50 day moving averages.
I still want to
see whether or not the Averages can confirm a break to the upside from the
short term trading ranges. Since the
indices are above Fair Value, I spent time yesterday looking for stocks that
were nearing either their Sell Half
Ranges or critical trading
junctures. A move up will likely push
several candidates to Sell trigger prices.
P/E
ratio peaks and troughs in secular market cycles (short):
The
January barometer (short):
Fundamental
Headlines
Only
one datapoint released yesterday and it was a secondary indicator: mortgage and
purchase applications were both up.
Of
course, investors’ primary focus shifted, at least for the day, from the fiscal
cliff to the FOMC meeting, the statement released after the meeting and
Bernanke’s subsequent press conference.
The bottom line: it is QE to infinity but with a dash of opacity.
The
Fed will begin purchasing $45 billion in US Treasuries per month in addition to
the $40 billion (in mortgages and treasuries) it is already buying in exchange
for shorter term government notes; that is, it is putting the pedal to the
metal on money printing.
Bernanke
also introduced some guidelines for policy actions though it is not all clear
how they will be implemented. The first,
QEIV will be carried out until
unemployment falls to 6 ½%. I am
not sure is that means a one time print.
I am also uncertain what happens if the economy grows, unemployment
declines but all those people who have technically been dropped from the labor
force start returning leading to a condition where unemployment remains stuck
even as the consensus grows that the economy is getting healthier.
The
second is that interest rates will stay low until inflation reaches 2 ½%. Here again, the narrative was confusing. The inflation rate can rise above that level
as long as long term inflationary expectations remain anchored---whatever that
means.
I
will conclude by saying that sitting through the press conference and listening
to Bernanke tap dance around the aforementioned guidelines. I was reminded of
some of the discussions I sat through in my college philosophy courses (it was
a minor) in which we students tried to sound intelligent discussing great
metaphysical concepts like how many angels can dance on the head of pin. He really dazzled with his bulls**t.
Question:
how long will it take for the other central banks to respond to the Fed’s new
‘upping the ante’ on its ‘all in’ policy?
FOMC
formal statement:
Why
it won’t work (medium):
A
short history of Market reaction to the QE’s (short):
The
shrinking timeframe between central bank interventions (short):
Bottom
line: I noted in yesterday’s Morning
Call that I didn’t share the Market’s enthusiasm on Tuesday for QEIV (1)
because the whole QE process, save perhaps QEI,
has been an economic disaster and (2) the Market rise following each
subsequent QE has been less and less.
This time around the price rise was measured in hours not days.
Meanwhile, the
politicians showed little progress on a compromise on the fiscal cliff. However, I remain convinced that we will get
an agreement---one way or the other.
Though I still believe that there is a decent argument that it won’t
happen until the Market nosedives and the politicians panic.
Inside
the making of a ‘fix’ (short):
The important
dates related to the fiscal cliff (short):
In spite of this
less than inspiring news, stocks continue to trade slightly above Fair Value
(as calculated by our Model). As I have
noted before, under similar valuation environments I have in past Bought stocks
on our Buy Lists. However, the magnitude
of the potential downside from another chapter in the EU sovereign debt crisis
makes me content to hold an oversized cash position and risk missing some
upside if I am wrong.
http://seekingalpha.com/article/1057641-greece-s-two-stage-default?source=email_authors_alerts&ifp=1
Interest
rates and stock prices (medium):
http://www.marketwatch.com/story/what-could-sabotage-this-stock-market-2012-12-11?link=home_carousel
For
the optimists amongst you (medium):
A
summary of Ray Dalio’s latest investment thoughts (short):
Thursday
morning humor:
Equities
as an inflation hedge (medium and today’s must read):
Outlook
for fourth quarter earnings (short):
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 Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.
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