Tuesday, June 10, 2014

The Morning Call + Subscriber Alert--One more reason to tighten the grip on your money

The Morning Call

6/10/14

My busy schedule continues.  We leave bright and early for number one grandson’s high school graduation.  No Morning Calls or Closing Bell for the rest of the week.

The Market
           
    Technical

            The indices (DJIA 16943, S&P 1951) continued their relentless advance, though yesterday was more of a baby step.  They closed above their 50 day moving averages and in uptrends across all time frames: short (16045-17524, 1868-2035), intermediate (16170-20527, 1813-2613) and long (5081-18193, 757-1974). 

            Volume, as usual, was anemic; breadth mixed, although the flow of funds indicator continues quite strong.  The VIX rose but it is developing a very short term downtrend and remains within short and intermediate term downtrends.  It is also below its 50 day moving average.

            The long Treasury again finished in a technically precarious position.  It closed below the lower boundary of its former very short term uptrend and the upper boundary of its former intermediate term downtrend.  Further, it is sitting right on the lower boundary of its short term uptrend.  The point here is that it has fallen below levels broken in a recent run up in price, raising the question of a head fake.  As you know, I have of late lamented the confusing, somewhat contradictory performance of bonds.  While the pin action the last week is suggesting that the equity and fixed income investors may be getting back in sync, we are witnessing an even more unusual occurrence---the bonds of financially weak European countries (Spain and Italy) are now trading at yields BELOW US Treasuries of comparable maturities.  I have no idea what to make of all these disconnects.  I am sure that in the fullness of time, we will know.

            GLD (120.65) was up fractionally, but remains solidly within very short term, short term and intermediate term downtrends and below its 50 day moving average.  It is nearing the lower boundary of its long term trading ranges (114.4) which should provide much needed support; but I wouldn’t bet money on it.

Bottom line:  the Averages continue to work off an overbought condition exactly as the bulls would want---doing little and letting time relieve the problem.  That is not too big a surprise in as much as the Markets got what they wanted last week (ECB easing and a decent nonfarm payrolls number) and this week is dead in the water with little news, economic or otherwise, expected.  So the Market has a peaceful easy feeling about it and in the absence of some truly unexpected negative surprise, the Averages remain on track to challenge the upper boundaries of their long term uptrends.  Indeed, all the happy talk now is about the indices busting through the ‘round number’ barriers (Dow 18,000/S&P 2000). 
 Our strategy remains to do nothing save taking advantage of the current momentum to lighten up on stocks whose prices are pushed into their Sell Half Range or whose underlying company’s fundamentals have deteriorated.

            Are we near a blow off top? (medium):

            Chart of the day (short):

            The S&P just broke another record (short):

            For the bulls:

    Fundamental
    
     Headlines
    
            To be brief, there were no headlines save the steady wave of corporate takeovers.  Of course, that in itself could be interpreted very positively.  After all if corporate America believes itself cheap, why shouldn’t we all?  The answer lies in the currency being used to make said takeovers.  If company A’s stock is overvalued, why wouldn’t company A use that paper to go buy a company or assets cheaper than it could ever build those same assets.  As long as stocks are overpriced this activity can go on forever, driving stock prices even higher.  I hate to mention that this type of activity picks up and eventually culminates as part of the feeding frenzy characteristic of Market blow offs.

Bottom line: I am not suggesting that we are in or about to be in a Market blow off.  I am listing one more factor that should make you take a tighter grip on your money.  I know that it is painful not being fully invested when stocks are acting as they presently are.  And it is disconcerting having no idea when this merry-go-round ends.  But end it will.  I am content to suffer an opportunity cost today to avoid being trampled on the way out the door when the music does end---if this current low volume tells us nothing, it is that when it picks up and everyone is hitting the bid, prices are likely to decline very rapidly. 

Fundamentally, nothing has changed.  ECB’s actions last week were a day late and dollar short.  Economic conditions are not improving in China or Japan, though admittedly, there has been radio silence out of Ukraine (oops, overnight it was announced that they failed to reach agreement on the new gas contract---not good if you are Ukrainian and cold); and while the US keeps on, keepin’ on, this more favorable outlook is already well reflected in stock prices. 

            Multiple copper re-hypothecation scandal spreads to second port (medium/long but a must read):

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.

            Another great article by Lance Roberts (medium):

            The latest from John Hussman (medium):

            The latest from Jim Grant (medium):

       Subscriber Alert

            In a periodic review of Ecolabs (ECL) it failed to meet the financial hurdles for inclusion in the Aggressive Growth Universe.  Hence, it is being Removed from the Aggressive Growth Universe and will be Sold by the Aggressive Growth Portfolio at the Market open.

            However, it did continue to meet the standards for inclusion in the Dividend Growth Universe and will remain.   The Dividend Growth Portfolio does not own ECL.

       Investing for Survival

            Bonds have a role in your portfolio (medium):

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