The Morning Call
4/17/14
The Market
Technical
The
upside follow through continued yesterday, but with no gyrations. The indices (DJIA 16462, S&P 1862)
advanced nicely. The S&P closed
within uptrends across all timeframes: short (1810-1987), intermediate (1760-2560)
and long (739-1910). The Dow remained within
short (15330-16601) and intermediate (14696-16601) term trading ranges and a
long term uptrend (5050-17400). They
continue out of sync in their short and intermediate term trends; but both
closed above their 50 day moving averages.
Volume
was down (pattern re-sets); breadth improved.
The VIX fell 10%, finishing within its short term trading range and its intermediate
term downtrend and below its 50 day moving average.
The
long Treasury continued to climb, ending within a short term uptrend and an intermediate
term downtrend and above its 50 day moving average.
GLD
was up fractionally, leaving it within short and intermediate term downtrends
and below its 50day moving average.
Bottom line: Tuesday’s
Market advance was on bad news, yesterday’s explosion was on good news (if you
love QE). All the divergences I repeatedly
refer to aside, when the investors are in an ‘all news is good news’ mode, the
safe assumption has to be that the indices are headed up---which likely means
they will challenge the upper boundaries of their long term uptrends; though as
a reminder I do not believe that challenge will be successful.
Meanwhile, with
the Averages still out of sync, we have a trendless Market; 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
Yesterday’s
US economic data were mixed to positive: weekly retail sales were mixed, March
new home starts were up but less than anticipated, weekly mortgage and purchase
applications were up and March industrial production was strong. I consider these stats reflective of our
forecast.
Overseas,
the numbers continue to disappoint. This
time the Chinese latest GDP growth was the lowest in a year and a half. Given current investor psychology, I am
assuming that they view this as a sign that the Chinese government will provide
economic stimulus irrespective of their recent insistence otherwise.
Another
Chinese trust can’t make its interest payments (medium):
Richest
man in Asia sells all his Chinese investments (medium):
The Chinese
property market (medium):
The
real headlines of the day came from the Fed.
First, the latest Beige Book was released and portrayed a growing
economy recovering from a weather (mentioned 103 times) induced slowdown but with
prices and wage pressures contained. I don’t
think that there is anything new in this information; it certainly includes
nothing that would prompt me to even consider altering our own forecast. But in the sense that it highlights the major
if not the only strength in the investment landscape, it could be interpreted
positively.
Of
course, the aphrodisiac in yesterday’s Market psychology was a Yellen speech in
which she was her dovish best, prompting yet another round of euphoria over the
likelihood of QEInfinity.
On
the other hand, investors elected to ignore yet another speech that injected cognitive
dissonance into their ‘money for free’ mindset; this one by Dallas Fed head who
was a lot less confident in Fed policy (short):
To
put a finer point on ‘the Fed (central bank) has you back’ sentiment, investors
unbelievably (at least to me) piled into the sovereign debt of the EU periphery. As I have noted before, when investors are chasing
prices higher for bonds of countries like Italy and Spain, risk is being
mispriced and the ultimate impact on investors will almost surely be negative
(short):
Finally,
shots fired in Ukraine and the natives are growing restless in Moldova:
Bottom line: when
all news is good news, there is no point in arguing with sentiment. Investors seem intent on pushing prices
higher; so higher they will go. Perhaps
this leg will be the one that pushes the Dow above the upper boundary of its
short and intermediate term trading ranges and concludes with an assault on the
upper boundaries of the Averages’ long term uptrend.
None of this
alters either the economic outlook or stock valuations---and it is the latter
that keeps me concerned. Equities are
generously valued by multiple metrics that have in the past proven reliable for
the long term. Sure prices can go
higher. But the potential upside (upper
boundaries of the indices long term uptrends) from here is a fraction of the
potential downside (year-end Fair Value) ---at least by my calculation.
My
bottom line is that for current prices to hold, it requires a perfect outcome
to the numerous problems facing the US and global economies AND investor willingness
to accept the compression of future potential returns into current prices.
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.
Investing for Survival
Curing
your money losing habits (medium):
http://www.marketwatch.com/story/can-your-money-losing-behavior-be-cured-2014-04-12
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