The Morning Call
The Market
Technical
Yesterday
was another good day for the indices (DJIA 15300, S&P 1652). The pin action confirmed the break of the
very short term downtrend off the May 22 highs.
That sets the short term trends
as trading ranges (14190-15550, 1576-1687).
However, they remain solidly within their intermediate term
(14295-19295, 1520-2108) and long term uptrends (4783-17500, 688-1750).
Volume
fell; breadth improved. The VIX declined
and is closing in on the very short term uptrend off its May 22 low. It finished within its intermediate term
downtrend.
GLD
climbed but it remains outside the boundaries of all major trends and its chart
completely broken.
Bottom
line: the Averages look ready to attack
their May 22 highs. Technically
speaking, I see no reason why that wouldn’t be successful. Breadth is quite positive; our stocks are in
the process of reversing to the upside.
That said, short
term the indices are still in a trading range and will be until those May 22
highs are surpassed. Whether or not the
break to the upside takes place means little to me with stocks are current
valuations. Indeed, any additional move
to the upside that takes any of our stocks into their Sell
Half Ranges
Update
on ‘the best stock market indicator ever’:
Fundamental
Headlines
In
the US , the
sole economic datapoint was weekly retail sales which were positive. That was offset by reports of declining
expectations for corporate revenues, White House lowering forecasts for 2013 GDP
and the IMF reducing its global economic growth estimates---all of which are in
direct contradiction to the growing Market consensus of an improving US
economy.
Clearly, no one
gave a s**t. Money continues to pour
into the stock market and once again, any news is either good news or
ignored. How long this lasts is anyone’s
guess.
***over night,
Chinese exports fell dramatically; S&P lowered the credit rating of Italy .
Bottom line: I
hate having to question valuations when I am sanguine on the economy. However, as I have lamented often in these
pages, our positive economic outlook when plugged into our Valuation Model
simply can’t get valuations to current levels.
And it is our Valuation Model that determines the timing of any
purchases and sales.
In this latest
uptrend, almost 25% of our stocks have traded into their Sell
Half Ranges
Clearly, it can
be argued that our Model recommended selling too soon to which I respond, in
general that is exactly right. But to be
clear, it is not a function of the Model’s Market Valuation. Rather it is a by product of how our
Valuation Model establishes value for
each stock; and for the last thirty years the natural result has been that many
of our high quality stocks reach stretched valuations before the Market in
general. Hence, our Portfolios have
always been early to Sell relative to the Market.
Of course, I
apply the same Valuation formula to the indices that I do to the individual
stocks; BUT the indices being overvalued (as they are now) have never been a
reason to Buy or Sell individual stocks.
It is always the individual valuations that drive transactions. The one impact that Market overvaluation has
is to slow the rate of any new Buys---but that has never altered our
Portfolios’ cash position by more than 5-6%.
So as painful as
it is to own more cash than I may want at this very moment, I continue to
believe that long term our strategy will keep our Portfolio’s performance
competitive through a Market cycle but with a lot less volatility. Until that formula no longer works, I remain
committed. Our Portfolios will continue
to take advantage of any upward price movement that drives any of our stocks
into their Sell Half
Ranges
The
revenue recession (medium):
The
fog surrounding ‘too big to fail’ (medium):
The
Fed’s bind (medium):
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