The Morning Call
The Market
Technical
The
indices (DJIA 13102, S&P 1413) suffered some serious whackage
yesterday. Both closed below the lower
boundaries of their short term uptrends (13487-14318, 1450-1542) for the third
day. The Dow closed below its 50 day
moving average (13352) for the second day while the S&P finished lower than
its 50 day moving average for the first day (1433). Both closed below their former resistance turned support levels
(13302, 1422). So both of the Averages
are at various stages of challenging their short term uptrend, their 50 day
moving averages and the former resistance turned support levels.
Our time and
distance discipline is operative on each of the above, though a close today
below the lower boundaries of their short term uptrends would confirm the break
of this trend. That said, I have opined
that the three aforementioned support levels would like act in concert; so I
think a clear break to the downside awaits the successful challenge of the 50 day
moving averages and the 13302, 1422 support levels.
If that were to
occur, there is minor support at 12973/1395 and major support in the lower
boundaries of the indices intermediate term uptrends (12610-17610, 1330-1928.
Volume was flat;
breadth was negative. The VIX soared and
is now approaching the upper boundary of its short term downtrend. A break of this resistance line would be a
negative.
GLD suffered
along with stocks, finishing the day below its 50 day moving average; although
it remains above the lower boundaries of its short term uptrend and its
intermediate term trading range. As I
mentioned in a previous post, the break of the 50 day moving average would
prompt the sale of an additional one
quarter of this position---which our Portfolios will do at the open this
morning. This brings our GLD holding
down to 10% and eliminates all of our GLD trading position.
Bottom line:
with yesterday’s whackage, the weak underlying technicals of the Market
which I have been discussing for several weeks became manifest in the
Averages. The question is now, will the
aforementioned triple support combo be enough to stop the slide or will it be
bombs away? As I noted, the only real major support below current levels is the
lower boundaries of the Averages intermediate term uptrends or another 4-6%
down from here.
All that said,
stocks are now oversold; so a bounce what not surprise. Bear in mind that a bounce does not indicate
the decline is over.
Reviewing the
charts last night, the great preponderance of holdings are in reasonably strong
patterns, that is, they can experience further downside without doing any
technical damage. That said, there were
a couple stocks that are testing major interim technical support levels; and if
they break those support levels, our Portfolios may lighten up. On the other hand, my focus is a bit more
balanced now between our Buy and Sell Discipline.
Fundamental
Headlines
Yesterday
was basically a bad news day. It started
over night with the Moody’s downgrade of Spanish credit, a rumor that the 2012
Spanish budget deficit will come in much larger than expected and a news story
that hedge fund manager Wilbur Ross had looked at the Spanish banks as a
potential investment and decided to pass.
***overnight EU PMI ’s were reported
and they were dismal.
This
is a bit long but in describes the growing rift between the two major powers in
the EU---Germany
My
favorite eurocrat on what is happening the EU currently (3 minute video):
Then,
we got disappointing earnings announcement from 3M and Dupont---two major Dow
companies; and their stocks sold off pre-Market opening
The
percentage of companies with revenue ‘beats’ so far this quarter (short):
Kaminsky---the
easy money has been made (video):
Finally,
weekly retail sales were quite soft and the Richmond Fed’s October
manufacturing index was well below expectations. Both of these stats are secondary indicators;
however, they portend an end to the really positive data flow from last week. We will get some primary indicators later
this week---new home sales and durable
goods orders. Clearly they could more
than offset yesterday’s reports; but it is a reminder that even if conditions
are improving somewhat, the economic growth is not likely to be a linear
progression nor is it likely to be of much magnitude.
The
Fed is debasing more than our currency (long but today’s must read):
The
latest from Lance Roberts (medium):
Bottom line:
reality seems to be imposing itself on investor perceptions as third quarter
earnings and revenues have been disappointing and the eurocrats remain
completely incapable of dealing with their fiscal problems. Plus they now seem to be grasping that a
Romney victory will come with some economic pain as the budget deficit is
reduced and the Ber-nank’s QE to infinity disappears into the sunset.
How much
euphoria is in prices, I don’t know. Our
Valuation Model suggests that stocks are still a couple of percentage points
overpriced. So that a return to Fair
Value would not be a big deal. The
question is, as investors come to grips with (1) the potential downside from
Europe if Spain or Italy goes toes up (2) and/or Obama wins, the political
class plays chicken and sends the economy over the ‘fiscal cliff’ (3) or Romney
wins and does the economically correct thing, will they follow our path and
insist on a larger cash position than normal to account for the magnitude of
those downside risks? If so, stocks
prices could be pushed down to very undervalued price levels.
For the moment,
I remain content with our Portfolios’ above average cash position; however, any
further decline in the Averages toward the lower boundaries of their
intermediate term uptrends, would prompt some buying.
The
latest from David Rosenberg (medium):
No comments:
Post a Comment