The Morning Call
The Market
Technical
Who
woulda thunk? After a gangbusters
Wednesday, the indices (DJIA 16170, S&P 1833) got shellacked
yesterday. Nevertheless, little changed
in their primary trends; although the S&P broke below its 50 day moving
average and the Dow closed right on its.
Other than that, the S&P closed within uptrends across all
timeframes: short (1802-1979), intermediate (1752-2552) and long (739-1920). The
Dow remained within short (15330-16601) and intermediate (14696-16601) term
trading ranges and a long term uptrend (5050-17400). The question now, will there be any follow
through to the downside or was yesterday just another reflection that volatility
is increasing but directionless.
Volume
rose (the pattern continues); breadth was terrible. The VIX soared 15%, finishing within a short term
trading range and an intermediate term downtrend and above its 50 day moving
average.
The
long Treasury popped above the upper boundary of its short term trading
range. As a result, I am making the call,
confirming the break of the short term trading range, re-setting with the very
short term uptrend becoming the short term uptrend. It remains above its 50 day moving average
but within an intermediate term downtrend.
GLD
rose, it continues to trade within short and intermediate downtrends. It did manage to close above its 50 day
moving average.
Bottom
line: I noted in yesterday’s Morning
Call that the key technically was follow through to the upside. Schizophrenia being what it is, the key today
is also follow through although this time to the downside. Clearly, stocks for the moment remain in directionless
volatility; although I would add that yesterday’s pin action did nothing to
improve the problem of growing divergences.
Direction aside,
given the proximity of the Averages to the upper boundaries of their long term
uptrends and the degree of stock overvaluation (as calculated by our Model),
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.
Bears
2, Bulls 1 (short):
Fundamental
Headlines
The
only US economic datapoint released yesterday was weekly jobless claims which fell
much more than anticipated. That’s good
and supportive of our forecast.
But
it was the overseas developments that held my attention:
(1) Greece
floated its first long bond issue in a couple of years and, astonishingly,
below the 5% level. To me, that was a
stunner. Not that Greece hasn’t made
some progress from its darkest hour. Not
that I would argue with investors that follow a contrary opinion strategy being
interested in buying Greece on the cheap.
But this offering wasn’t cheap and it was oversubscribed by a factor of three,
suggesting to me that this wasn’t a bunch of contrary opinionists; this was
more of the same old carry trade, yield chasing crowd. You want a definition of ‘irrational
exuberance’, you got it---which by the way is not a plus sign for the Market,
(2) Chinese
March exports and imports were down significantly---pointing to continuing economic
weakness. Further, another bond issue
moved into default. And finally, the
Chinese premier said that there was no plans for stimulus. Now I will concede that these guys lie---a
lot; but for the moment none of the above is good news for China, the EU or the
US,
(3)
Japanese machinery orders were very disappointing, indicating
that the economy continues to deteriorate.
The government’s solution?
QEInfinity squared. Why? Because the ruling class thinks that it is
smarter than the Market---generally a prescription for disaster,
(4) the
tensions in Ukraine are intensifying.
Fingers are pointing; activists in both camps [Ukraine, Russia] are
taking to the streets; and sabers are rattling.
Clearly, diplomacy could keep this crisis
under control. That said, I keep
remembering Putin’s ‘greatest tragedy of the twentieth century’ comments. Combined with his healthy disrespect for
Obama, I can’t help thinking this situation is going to end the way Putin wants
it to end---fuck diplomacy.
Latest from Ukraine:
The big question of the
day was, what in the world happened to Wednesday’s ‘money for nothing’ euphoria? Most likely it was my second hypothesis,
i.e. the dovish FOMC minutes were just a convenient excuse for relieving an
oversold condition. I assume that this
means that the Market is as confused as ever about Fed policy---and for good
reason because I believe that the Fed is as confused as ever about Fed
policy. That is not a positive, in my
opinion, in that it likely increases the odds of the Fed bungling the
transition process to tighter money and the risks that this process will not
end well for the Markets.
Comments
from another Fed member (short):
The
Market is rigged and the Fed is the biggest rigger (medium):
Bottom line: thank
God for American business, because its outstanding execution is keeping the
economy improving, however sluggishly.
That is about the only positive thing I can say. Our ruling class keeps throwing monkey
wrenches in the wheels of economic progress; the Fed is making matters worse by
adding confusion to the mix. Overseas,
the Chinese are doing the right thing for the long term but assuming they stick
to their guns, the short term effects will be negative. Everywhere else, the ruling classes are, pursuing
the same old ineffective policies they have followed for years---except for
Russia who, if indeed it is turning over a new leaf, will increase the heat in
global tensions. And none of this is
being reflected in stock prices (well, maybe yesterday was a precursor).
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.
Bear
in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and
their cash position is a function of individual stocks either hitting their
Sell Half Prices or their underlying company failing to meet the requisite
minimum financial criteria needed for inclusion in our Universe.
It
is a cautionary note not to chase this rally.
The
latest from Marc Faber (2 minute video):
Timing
is extremely important (medium):
The
latest from Keith McCullough (4 minute video):
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.
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