The Morning Call
The Market
Technical
The
indices (DJIA 15976, S&P 1791) turned in a very disjointed performance
yesterday. Both blew through the round
number levels---16000/1800---then retreated; the Dow closing up while the
S&P was down. Nevertheless, both remained
within uptrends across all time frames: short term (15299-20299, 1717-1871),
intermediate term (15299-20299, 1633-2215) and long term (5015-17000,
728-1850).
However, the pin
action was the second S&P ‘outside’ down day in as many weeks. As you know, the first one had zero
relevance; so this time may simply be a repeat. On the other hand, these ‘outside’ days are
infrequent enough and historically have signaled reversals often enough, that
we should pay attention. So be a bit
cautions over the next couple of days in whatever you may be doing in the
Market.
Volume
fell; breadth was mixed. The VIX popped
7%, bouncing off the lower boundary of its short term trading range. It also finished within an intermediate term
downtrend.
For the bulls’
(short):
The
long Treasury rose in price, but remains in a short term trading range. It is also in an intermediate term downtrend.
GLD
fell, closing noticeably below the point of the pennant formation I discussed
on Monday---which suggests a trend to lower prices.
Bottom
line: the Averages made new all time
highs intraday, hitting the magic round numbers of Dow 16000 and S&P 1800
before falling back by the closing bell.
I don’t think that there is anything necessarily ominous about that pin
action.
However, the
above link of the positive advance/decline stats notwithstanding there remain numerous
signs that breadth is deteriorating, including our own internal indicator. That suggests to me that this is a time to do
nothing, even on a trading basis.
Foreign
purchases of US stocks hits low (medium):
Indeed as a
longer term investor, I would take advantage of the current high prices to sell
any stock that has been a disappointment and to trim the holding of any stock
that has doubled or more in price.
If one of our
stocks trades into its Sell Half
Range
Fundamental
Headlines
There
was almost no economic news flow yesterday either here or abroad. So in a complacent world where investors tend
to interpret any news as good news, then no news must almost certainly be good
news. As a result, stocks ramped at the
open, shooting above the magical ‘round numbers’ of 16000/1800 and then traded
around that level for most of the day.
***over
night (1) in China, interest rates continued to rise; the central bank
announced that it will exit currency intervention and remove the ceiling on
bank deposit rates and (2) the OECD lowered is estimated global economic growth
rate.
Then
late in the trading day, Carl Icahn was speaking at an investor conference and
suggested that stocks might be a bit expensive and that he was concerned. That sent stocks lower. Personally, Icahn does not rate at the top of
my list of acute Market strategists.
Indeed, my guess is that he wouldn’t rate himself as a Market
strategist. On the other hand, given his
past tactics, I am cynical enough to think that there might be a motive for
making bearish noises other than just expressing an honest opinion. Whatever his motive, this will likely have
little impact today---barring it developing into one of those ‘emperor’s new
clothes’ moments.
Icahn’s
comments (short):
Bottom line: the assumptions in our Economic and
Valuation Models remain on track, including those of an over easy Fed that
bungles the transition from easy to tight money and a half assed solution to
our fiscal problems. Of particular
concern to me is the former which I worry will end far worse than is reflected
in our Model.
I remain confident in the Fair Values
generated by our Valuation Model; hence, stocks are overvalued. Of course, there is some likelihood that they
can get even more overvalued if the large number of underperforming money
managers choose to chase potential higher returns through year end.
This doesn’t mean that stocks are a value;
it means that catching up is an economic necessity for those trailing money
managers. It may also mean that by the
end of December, a Chevy Market could be carrying not a Cadillac, but a
Mercedes price.
The
latest from John Hussman (medium):
The
latest from Jeremy Grantham (medium):
More
on valuation (medium):
And
And
this wrap up on the recently completed earnings season (short):
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