The Morning Call
The Market
Technical
Yesterday,
the indices (DJIA 13021, S&P 1415) continued their rally after some early
morning turmoil. Both finished for the
second day above the upper boundary of their short term downtrends (12453-12950,
1350-1396). A close today above those
upper boundaries will confirm a break and the Averages will re-set to a short
term trading range.
Should
this occur, candidates for an upper boundary would be (1) their 50 day moving
averages [13190/1419] and (2) two former support now resistance levels
[13302/1422 and 14190/1576].
The
indices remain within their intermediate term uptrends (12847-17847, 1356-1952)
Volume
fell, breadth was mixed. The VIX
declined, finishing below its 50 day moving average and the upper boundary of
its short term downtrend but above the lower boundary of its intermediate term
trading range.
GLD
recovered some of Wednesday’s loss but remains below its 50 day moving average
and the lower boundary of the very short term downtrend for the second
day---which confirms the break of this trend.
There is some good news in that the bounce made Wednesday’s low a higher
low than the previous one in early November.
Nonetheless, our Portfolios Sold
at the close one half of the shares purchased Tuesday morning. GLD remains above the lower boundaries of its
short term uptrend and the intermediate term trading range.
Bottom
line: the bulls have the reins right now, however much I may disagree with
their reasoning. As a result, I am gutting
today out to be sure the short term downtrends are confirmed as broken. Even if they are, the new trading ranges
would have a lower boundary of the mid November low (12463/1343) and a
potential upper boundary of the 50 day moving averages (13190/1419). In other words on a technical trading basis,
more downside than upside and no reason to be chasing stocks at current prices
especially with them trading above Fair Value (as defined by our Model).
The
Santa Claus rally (short):
Fundamental
Headlines
Yesterday
was another decent one for economic data: the bad news was the November retail
sales were anemic; but the first two weeks were impacted by Sandy GDP was up considerably, though some
economists are complaining about the make up of its components and (2) jobless
claims were down albeit not as much as expected. So none of these stats were unmitigated
positives or negatives; but they were weighed to the positive side. That works for our forecast.
That
said, the pin action followed the political narrative on the fiscal cliff. Early in the day, prices were off on some
disappointing comments from Boehner; then rallied as more positive comments
surfaced in the afternoon. However,
after the close, the WSJ reported that it had a copy of Obama’s negotiating
points, the important ones being (1) $1.6 trillion in tax increases and (2) $50
billion in INCREASED spending---no wonder Boehner was a sour puss. Clearly, if the trend in prices remains
highly correlated to fiscal cliff news, the Market will open down this morning.
Under
the category of Investing for Survival (medium):
An
optimist’s view of the fiscal cliff (long):
The
phantom austerity of our political class (medium):
Ann
Coulter may have the long term solution to the fiscal cliff problem, although
it will cause short term pain. The GOP
stands back, agrees the Obama won the election, give Him what He wants but makes
it clear (1) that the dems now own the economy lock, stock and barrel and (2)
why their policies are misguided.
Bottom
line: I continue to believe that we are
going to get a resolution to the fiscal cliff; though there are two associated
issues: (1) the terms of the compromise; and
I have seen nothing that would lead me to believe that the agreement
will be anything but non-optimal---including the above linked to article which I
consider optimistic. (2) when we get it; and if it is not done or almost done
by Christmas [Obama’s ‘hoped for’ deadline], it will still get done early
2013. To be sure, that will likely scare
many investors. But, all other things
being equal, a sell off based on that fear would be a buying opportunity.
Of course, all
things are never equal and the risk posed by multiple eurozone sovereign and/or
bank insolvencies, in my opinion, is much more significance than the fiscal
cliff (1) because it is more likely than the fiscal cliff and (2) the economic
consequences are unquantifiable where as we have enumerable studies precisely
outlining the economic costs of going
off the cliff.
Update on Greek
bank revolt (medium):
Meanwhile, Greek
pensioners rage at officials who invested much of their pensions in Greek bonds
(this is long, just read the first couple of paragraphs to get the jest of the
story):
***over night,
economic reports out of the EU show unemployment at record levels and retail
sales plunging.
With stocks now
slightly above Fair Value, there is no compelling case for buying stocks. On the other hand, there is no reason not to
add to those stocks on our Buy Lists, absent the eurocrisis. Unfortunately, conditions in the EU continue
to deteriorate and I can’t quantify to the downside. And that spells trouble with a capital
T. I love our Portfolios’ cash
positions.
How
cheap are stocks (short/medium):
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