The Morning Call--A second try at the all time high

The Morning Call

2/26/14

The Market

           

    Technical

            The indices (DJIA 16179, S&P 1845) had a dull day remaining within their short term trading ranges (15330-16601, 1746-1858), though the S&P challenged its upper boundary for the second day in a row 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 (1719-2499) and above its 50 day moving average.  Both are in long term uptrends (5050-17400, 736-1910).

            Volume was off considerably; breadth deteriorated.  The VIX fell, somewhat surprisingly for a down price day.  It closed within its short term trading range and intermediate term downtrend and below its 50 day moving average.

            The long Treasury rose, leaving it within a short term trading range and an intermediate term downtrend.  Its move up was sufficient that a close at current levels today will invalidate the head and shoulders formation.

            GLD increased again, finishing within a very short term uptrend but also in a short and intermediate term downtrend.  Unfortunately, I am still waiting for a correction before considering nibbling again.

Bottom line:  the S&P made a second challenge on its all-time high in as many days and failed again; though yesterday’s volume much less impressive than Monday’s.  On the other hand, the news continues bleak---so a two point decline on the S&P should be viewed as a moral victory for the bulls. 

I don’t think that the pin action gave us any hint on the odds of a successful challenge on the Averages all-time highs.  So I remain on watch.   If the past two days are  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 they are forming 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.

            Is the climax near (short):

            http://www.thereformedbroker.com/2014/02/24/here-comes-the-climax/

            Stock performance in March of a mid term year (short):

            http://blog.stocktradersalmanac.com/post/Outside-of-Q4-March-is-Top-Performing-Month-of-Midterm-Years

    Fundamental

     Headlines

            The US economic news remains concerning: weekly retail sales were mixed, February consumer confidence was below expectations and the Richmond Fed’s February manufacturing index was negative.  There was one positive report---the November Case Shiller home price index rose 0.8%---the operative word being ‘November’.

            Overseas, Chinese corporate debt hit record highs while Ukraine is suffering a run on its banking system---neither apt to brighten the global economic outlook.

    

China’s corporate debt hits all time high (short):

            http://www.zerohedge.com/news/2014-02-25/chinas-corporate-debt-hits-record-12-trillion

            Bank run in Ukraine (short):

            http://www.zerohedge.com/news/2014-02-25/bank-run-full-frontal-ukrainians-withdrew-7-all-deposits-two-days

Bottom line: there is nothing inspiring by the economic data flow save that (1) its disappointing nature lifts investors’ hopes that the Fed will keep the monetary spigots open for as far as the eye can see.  That may occur although that is not what the Fed stated clearly in its last FOMC minutes, or (2) it can be totally discounted as weather related which may be the case.  But that is a risky bet, in my opinion.

Equity valuations are near historic highs on numerous measures.  They can, of course, become more overvalued.  Indeed, that is exactly what has occurred over the last year.    However, like Russian roulette, that is a game I can choose not to play.

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.

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.