The Morning Call
The Market
Technical
The indices (DJIA 13235,
S&P 1430) returned to the upside yesterday.
The S&P lifted off its 50 day moving average and traded above the
upper boundary of its short term trading range (1343-1424) for the second
time. The DJIA remained above its 50 day
moving average but below the upper boundary of its short term trading range
(12460-13302). This again puts the
Averages out of sync on the short term trading ranges---both index must confirm
a break above the upper boundary of its short term trading range.
The indices remain within their
intermediate term uptrend. They also
remained below the lower boundary of a very short term uptrend off the
mid-November lows.
Volume rose; breadth improved. The VIX fell, closing once again below its 50
day moving average and remains between the upper boundary of its short term
downtrend an the lower boundary of its intermediate term trading range.
GLD was up but remained below its 50
day moving average. It continues to
trade above the lower boundaries of its short term uptrend and intermediate
term trading range.
Bottom line: the
good news is that equity prices were strong yesterday. The bad news is that the indices aren’t in
trend harmony. So the issue now is
follow through; and my guess is that at least short term, we will probably get
it---historically, the week before Christmas has been very positive for
stocks. Nevertheless, until
direction/trend is confirmed, there is nothing to do. If stocks break out to the upside, my focus
will shift more heavily to our Sell Discipline.
Three
stock market divergences to worry about (short):
Fundamental
Headlines
The
only economic stat released yesterday was the NY (Empire
State
The
fiscal cliff watch was resumed; and we got a couple of hopeful signals:
(1)
Boehner met with Obama and Geithner again. While Boehner didn’t confirm it, word on the
Street is that he offered to give on tax rates for individuals earning more
than $1 million a year; and Obama has reportedly upped the income level for
higher tax rates to $400,000 from $250,000.
So progress is being made.
At least as it
applies to taxing. The question is will
Obama give on real cuts in spending?
Apropos of that, a bill was introduced yesterday for $60 billion in
emergency relief spending for Sandy Sandy related pork, it should be embarrassing to
the political class. Apparently, it
isn’t---leaving it unclear whether the dems will do anything to reduce
spending.
(2)
Reid told the Senate to prepare to return after
Christmas, if it looks like an agreement will reached.
Charting the US
Bottom line: it
certainly appears that progress is being made on a compromise on the fiscal
cliff. That’s what we are
expecting. The key is the terms of the
agreement. If we get a grand bargain,
that would be a big positive for the economy and the stock market. If not, then I have a compromise in our
Models that includes tax increases and some spending cuts though most of them
achieved through the usual Washington Sandy relief bill, it would appear that
this is the most likely scenario.
With equities
prices above Fair Value (as measured by our Valuation Model) and little
prospect for a fiscal cliff outcome better than assumed in our Model, there is
little fundamental incentive to chase stocks up.
Update
on Doug Short’s Valuation Models (short):
Zero
interest rates are the problem not the solution (medium):
The
connection between the economy and the stock market (short):
Systematic
risks in global banking (medium):
The
latest from John Hussman (medium):
The
latest in the Libor scandal (medium):
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