Tuesday, February 25, 2014

The Morning Call---All I can do is laugh

The Morning Call

2/25/14

The Market
           
    Technical

            The indices (DJIA 16207, S&P 1847) had a volatile session, ending up but off their highs.  They remained within their short term trading ranges (15330-16601, 1746-1858), though the S&P challenged its upper boundary and failed  The Dow closed within its intermediate term trading range (14696-16601) and closed above its 50 day moving average, while the S&P is in an intermediate term uptrend (1718-2498) and above its 50 day moving average.  Both are in long term uptrends (5050-17400, 736-1910).

            Volume was huge---a magnitude that I would have expected at last Friday’s option expiration; breadth was up though quite meekly given the size of the day’s price gains.  The VIX declined, finishing with its short term trading range and intermediate term downtrend and right on its 50 day moving average.

            The long Treasury was down, closing within a short term trading range and its intermediate term downtrend.  The head and shoulders formation is still in play but time is working against it.  If the bond trades up or remains flat for another couple of days, the pattern will be invalidated.

            GLD rose again, staying well above the lower boundary of its very short term uptrend.  However, it is also in both short and intermediate term downtrends.  Our Portfolios remain on the sidelines.

Bottom line:  yesterday could be interpreted two ways: the bulls could take heart that stocks were up on good volume in the face of lousy news; the bears could argue that the S&P’s high volume attack on its all-time and subsequent failure smacks of a blow off top.  There is no way that I am going to talk my book here (taking the bearish case) because I have been wrong on this Market for the last year.  Nonetheless, the alternatives are there.

The important thing is what actually happens from here.  If yesterday was a prelude to a more furious/successful assault on 1858, then the next stop is likely the upper boundaries of the Averages long term uptrends.  If it was a triple top, then the lower boundary of the S&P’s intermediate term uptrend becomes the focus.

Meanwhile, we have a Market in a trading range; so there is really not much to do save using any price strength that pushes one of our stocks into its Sell Half Range and to act accordingly.

    Fundamental
    
     Headlines

            The news flow yesterday probably couldn’t have been worse.  In the US, the January Chicago Fed’s National Activity Index was negative and December’s reading was revised down, the February Market flash PMI was well below expectations and the Dallas Fed manufacturing index was also below estimates and barely on the plus side. 

            Overseas, now that the Olympics are over, Russia is flexing its muscles in Ukraine; and Venezuela keeps going from bad to worse.

            None of this bothered investors as the whole bad news is good news mindset dominates Market psychology.  At this rate, if government announced that we were in a depression tomorrow, the S&P would spike open at 2000.  I say that partially in jest but in truth it is the logical extreme of current behavior.  

            Bottom line: Sunday I watched the final round of the Accenture World match play tournament.   At one point, Jason Day (one of the players) just laughed (in disbelief) at the last of what was a series of the incredible shots made by his opponent out of seemingly impossible lies.  Indeed, the entire golf world marveled at these unbelievable shots.  

Right now, I feel like Jason Day.  I watch the financial networks all day long and wonder at the nonsense I hear about the economy and valuations---and yet at this moment in time, they are calling the shots.  When it ends---I have no idea.  But it will end and a lot of investors are not apt to be happy. 

Incidentally, Jason Day won the tournament.

Another must see blast from Rick Santelli:

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.

            Thoughts on market valuation (medium):

            Stocks and the economy (short):
            http://advisorperspectives.com/dshort/guest/Michael-Lombardi-140225-Stocks-and-Economy.php




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.

No comments:

Post a Comment