The Morning Call---No follow through

The Morning Call

12/20/13

The Market

           

    Technical

            After a raucous day on Wednesday, the indices (DJIA 16179, S&P 1809) took yet another break yesterday.  I think that this lack of follow through is a sign of growing uncertainty/lack of firm conviction/increased schizophrenia among investors; and it is somewhat indicative of the pin action over the last month or so: it looks like stocks are signaling a move up/down, then nothing or just the opposite happens. 

In this latest instance, while I was surprised at the Market’s aggressive response to the Fed’s new tapering for pussies policy, I just assumed that I was wrong (not the first time) and stocks would be off for a run at 17400/1900.  Instead, they snoozed. True our internal indicator was rotten; but it hasn’t been upbeat for most of the year and the Averages just kept climbing.

            I am not angling for a firm conclusion here; I am saying that the Market action is confused and uncertain, that it could break either direction, I just don’t know which.  Meanwhile, the indices remain tucked nicely within uptrends along all major timeframes: short term (15566-20566, 1757-1911), intermediate term (15566-20566, 1660-2241) and long term (5050-17400, 728-1900).

            Volume fell, breadth deteriorated much more than the pin action would suggest.  The VIX rallied, remaining within its short term trading range and intermediate term downtrend but continuing to be of little value in discerning Market direction.

            The long Treasury fell again---not all that surprising given that some token tapering is about to start.  It finished within its short term trading range and intermediate term downtrend and is still building a head and shoulders formation.

            GLD was whacked big time, closing right on the lower boundary of its long term trading range.  As I have noted several time, how it handles this support level should say a lot about future direction.

Bottom line:  yesterday’s sleep fest notwithstanding, I still think that seasonal factors provide a better than even chance of the indices challenging the 17400/1900 level.  However, I will continue to use any advance as an opportunity for our Portfolios to take advantage of our Sell Price Discipline.

            The latest from the Stock Traders Almanac (short):

            http://blog.stocktradersalmanac.com/post/2014-Stock-Market-Technical-Analysis-Forecast--Looking-Back-to-See-Forward-

    Fundamental

    

     Headlines

            Yesterday’s US economic data didn’t make for all that good a reading: weekly jobless claims rose versus an expected decline, the December Philly Fed manufacturing index was lite of estimates and November existing home sales were not good.  Keeping the day from being a total bummer was November leading economic indicators which were above consensus.

            International news didn’t help: Chinese rates are spiking prompting the Bank of China to ease monetary conditions.  ***that continued over night

            http://www.zerohedge.com/news/2013-12-19/china-also-tapers-forced-promptly-bail-out-money-markets

            As bad as the above sounds, it comes after a string of upbeat datapoints.  So I see nothing to worry about at this point.  Strangely, if investors were really as jazzed about the almost imperceptible change of direction in Fed policy as Wednesday’s pin action implied, then a couple of lousy stats should have made them all that more jiggy.  Nothing.

Bottom line: Market reaction to tapering appears to have come and gone.  That leaves the questions; (1) will the Fed prove effective in unwinding QE without causing economic disruptions?  (2) will it even matter to the Markets if current overvaluations persist or get more extreme?  The answers to those questions will likely play a major role in shaping the Market over the next 18-24 months.

 I can’t emphasize strongly enough that I 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.

            The Fed’s economic projections: myth versus reality (medium):

            http://www.zerohedge.com/news/2013-12-19/feds-economic-projections-myth-vs-reality-dec-2013

            Fed balance sheet hits $4 trillion (short):

            http://www.zerohedge.com/news/2013-12-19/feds-balance-sheet-rises-record-401-trillion

            More from Doug Kass (medium):

            http://www.thestreet.com/story/12161360/1/kass-post-fomc-strategy.html

            Corporate earnings projections declining (short):

            http://advisorperspectives.com/dshort/guest/Michael-Lombardi-131219-Collapsing-Corporate-Earnings-Growth.php

     Subscriber Alert

            The stock price of South Jersey Industries (SJI) has traded below the lower boundary of its Buy Value Range but remains well above its Stop Loss Price.  Therefore, SJI is being Removed from the Dividend Growth Buy List, but the Dividend Growth Portfolio will continue to Hold it.

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 Investing For Survival is to help other investors build wealth and benefit from the investing lessons he learned the hard way.