The Morning Call
The Market
Technical
The indices
(DJIA 17596, S&P 2035) bounced back from Wednesday’s losses, though much of
the advance had been lost by the end of the day. Both remained within
uptrends across all timeframes: short term (16197-18943, 1866-2230),
intermediate term (16184-21149, 1709-2425) and long term (5360-18860,
782-2071). Both remained above their 50
day moving averages.
Volume
declined; breadth improved. The VIX was
up another 8%, closing within a short term trading range, an intermediate term
downtrend and above its 50 day moving average.
Looking at the
VIX as a sign for year-end stock performance (short):
Update
on sentiment (short):
The
long Treasury was up again. It finished
within a very short term uptrend, a short term uptrend, above its 50 day moving
average and above the upper boundary of its intermediate term trading range for
the second day. If it remains above this
boundary through the close next Monday, the intermediate term trend will re-set
to up.
GLD
declined fractionally, but ended above the upper boundary of its short term
downtrend for the third day. Under our
time and distance discipline, that confirms the break of the short term downtrend
and re-sets it to a trading range. It
also remained above the lower boundary of its former long term trading range
for the fourteenth time in the last seventeen days. As a result, I am calling the recent break of
this trend a false flag and re-setting it to the former long term trading
range. It also finished above its 50 day
moving average and within an intermediate term downtrend.
Bottom line: after
the buy the dippers failed to show up in Wednesday’s carnage, they came back
strong at yesterday’s open and then faded during the day. I think this pen action continued to mirror
my call yesterday: ‘I assume means that the ‘buy the dippers’ are at least starting to get
a bit fidgety. Not that they are going
away, maybe just taking a time out.’
Further, the
price action in bonds (yields falling), gold (breaking negative trends) and the
VIX (soaring after a brief break of its short term uptrend) also suggest that
investors may be starting to discount something other than an improving US
economy and QE forever.
Global
stock markets are still correcting (short):
More
on the fallout in the oil patch (medium):
The
latest from Lance Roberts (medium):
Inflation/deflation
and stock prices (medium):
http://www.zerohedge.com/news/2014-12-11/russell-napier-has-never-happened-without-drop-stock-prices
Fundamental
Headlines
More
improving US economic news yesterday: weekly jobless claims were down slightly;
the November retail sales headline number was very strong though (1) ex autos
and gas it was up only marginally and (2) it included the third largest seasonal
adjustment ever; finally, October business inventories were up less than anticipated
and sales fell. The big number was
retail sales (a primary indicator); and while it would have been better if
there weren’t some ambiguous components, it was still up in a rough global
economic environment. And that is a
whole lot better than a sharp stick in the eye.
Meanwhile,
down the rabbit hole, the FY2015 budget deal suddenly hit a snag (it passed
with two hours to spare) as (1) democrats [led by Elizabeth Warren and Nancy
Pelosi] are objecting to the provision freeing banks from having to spin out
their derivatives operations and (2) republicans who are pissed that there are
a number of pork barrel add ons and that they haven’t been given a chance to
read the 1600 page bill. Remember all
the GOP propaganda against earmarks and the democrats’ lack of transparency (we
have to read the bill to see what’s in it).
Is there any doubt that the American people have just substituted one
group of self-interested morons for another group of equally self-interested
morons? This whole thing is legislative
malpractice and they should all be recalled.
It also raises the question, will we ever get meaningful spending,
regulatory and tax reform?
Overseas, well, it
was more of the same. I know that this
sounds like a broken record; but I am just reporting the news. It doesn’t alter, in fact it keeps making
worse, the risk that at some point global events could impact the US
economy. Anyway, Norway’s central bank
lowered its main interest rate as fears of an oil related recession mount; the
ECB held its second round of bank asset repurchase agreements which was better
than the first but still well short of expectations; and Greece remains in a
political crisis that could result in a default or it exiting EU.
There was one
bright spot: the Bank of China added to banking reserves. That said, this bank has been giving off some
mixed signals of late; and when you couple that with the fact that these guys
lie like a rug about their data, it doesn’t give me great comfort that China is
going to contribute to global QEInfinity in any meaningful way.
***overnight,
both Chinese and EU industrial production numbers were below expectations.
However, not to
be denied its rightful place in the headlines, oil took another leg down,
closing below the $60 a barrel mark. The
big question at this point, is it going lower and will it take stocks with
it? I am no oil expert; but there has,
of course, been an endless stream of ‘experts’ yakking about the future
direction of prices. Most seem to think
that there is more downside though opinions vary on the driving factors as well
as the magnitude of decline.
One thing they
do agree on---the fracking business was built on credit (much of it subprime) which
if not serviced by the terms of the debt, will bankrupt companies. It is the risk that David Stockman so eloquently
detailed in the article I linked to yesterday.
The risk here is not temporarily lost production or jobs, it is the loss
of companies and investment assets.
Bottom line: this
week’s economic data so far has provided ammunition for those forecasts of an
improving US economy. Yesterday’s
November retail sales number was particularly encouraging. That said, forces outside the US continue to
make our progress ever more difficult.
The rest of the world simply can’t get a break---the data is
deteriorating, concerns are now being raised that the oil price decline may not
be as positive as everyone originally thought and the mainstay of investor
optimism, QE, even assuming that it works (which it doesn’t), is now less
assured than it was a month ago.
Nevertheless,
stocks remain priced to near perfection.
For the life of me, I can’t figure out why anyone wouldn’t want to take at
least some money off the table in any stock that is selling at historic
absolute and relative highs.
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.
Subscriber Alert
The
stock price of Chevron (CVX-$106) has fallen below the lower boundary of its
Buy Value Range. Hence, it is being
Removed from the Dividend Growth Buy List.
It remains above its Stop Loss Price and therefore is being retained in the
Dividend Growth Portfolio.
The
stock price of ExxonMobil (XOM-$89) has fallen below the upper boundary of its
Buy Value Range. Accordingly, it is
being Added to the Dividend Growth Buy List.
The Dividend Growth Portfolio already owns a full position in XOM. However, even if there was room for
additional shares, no shares would be Bought at this time.
This
kind of action, i.e. stocks trading into their Buy Value Range then trading
through not only the lower boundaries but also their Stop Loss Prices is not
atypical during severe Market declines.
The oddity here is that the Market is near highs but energy stocks are
falling to bear market levels. The clear
question is which one gives? Will the
Market follow oil stocks down or will they pull them back to higher
levels? In my opinion, it is no time to
make a bet on either. Patience.
Investing for Survival
Four
investment lessons from 2014 (medium):
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