Tuesday, January 6, 2015

The Morning Call & Subscriber Alert---Watch the January effect

The Morning Call

1/6/15

I am having day surgery today.  So tomorrow’s Morning Call may be abbreviated.

The Market
           
    Technical

            Another rough day in stock land.  The indices (DJIA 17501, S&P 2020) closed down big and below their 50 day moving averages.  However, they remained within uptrends across all timeframes: short term (16282-19082, 1882-2246), intermediate term (16342-21607, 1725-2341) and long term (5369-18860, 783-2083).

            Volume was up noticeably; breadth was awful.  The VIX rose 12% but still finished within its short term trading range and intermediate term downtrend.  An important technical factor to be watching currently is the market pin action in the first five trading days of January (if down, there is a 53% chance of a down year) and the full month of January (if down, there is a 58% chance of a down year).

            B of A’s Sell Side Indicator (short):

            The long Treasury continues its very strong performance, remaining in uptrends across all timeframes.

            GLD was also strong, closing back above the lower boundary of a very short term uptrend after two days below it---negating the break.  Not that I think gold goes nuts on the upside.  It remains within a short term trading range and an intermediate term downtrend.  For now, the most realistic hope is that it has stopped going down.

Bottom line: the S&P was unable to hold above the upper boundary of its long term uptrend last week; yesterday both of the Averages dropped below their 50 day moving averages.  Nevertheless, they remain firmly within uptrends. So at least for the moment, this correction is nothing more than a pause that refreshes.  That said, TLT is yelling that something is awry somewhere [global recession or international incident] and GLD is supporting it.  Finally, stock price direction in the month of January tends to anticipate performance for the rest of the year.   The initial milestone is the first five trading days.

            The latest from TraderFeed (short):

    Fundamental
   
            Yesterday was rather sparse for economic news.  In the US, December light vehicle sales were soft versus November but in line with forecast (a precursor to weaker December retail sales?).  Overseas, German CPI was less than anticipated---an argument for their approval of Draghi’s next QE move, possibly a plus.

            ***overnight, December EU composite PMI came in at 51.4 versus expectations of 51.7; December Chinese services PMI was reported at 53.4 versus estimates of 53.0.

            However, investor sentiment was focused of three issues:

(1)   the potential Greek exit from the EU.  As you may know, there is an election coming up in late January and one of the leading candidates wants to take Greece out of the EU.  The primary concern being that Greece devalues its currency and hence the value of all those Greek bonds held in EU financial institutions.  A lesser worry being that other countries follow suit.

(2)   the price of oil fell below $50 a barrel, suggesting once again that all those pundits viewing lower oil prices as an unmitigated plus need to perhaps be re-thinking their position.  Here’s why:
           
                 Gundlach on oil (medium):

                 Declining oil price’s impact on consumer spending (short):

                Plus, the real cause of lower oil prices (medium):

(3)   the dollar continues to strengthen.  This is good news, at least in the short term, for bonds; but bad news for [the unwinding of] the carry trade, which as you know, has been one of my big concerns.

Bottom line: the last two weeks’ economic data has been relatively positive for our forecast of a slowly improving US economy. That said, two big questions loom before us; (1) what will be the ultimate impact of declining oil prices on US economic growth? and (2) how long can the lousy numbers from overseas continue before they begin to affect our economy?

Nevertheless, the last three trading days notwithstanding, 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.

            Four investments to avoid in 2015 (short):

            Update on valuations (short):

       Subscriber Alert


            The stock price of Nucor (NUE-$47) has fallen below the lower boundary of its Buy Value Range.  Therefore, it is being Removed from the Dividend Growth Buy List.  Since it remains above its Stop Loss Price, the Dividend Growth Portfolio will continue to Hold NUE.

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