The Morning Call
I am preparing for cataract
surgery (it is hell getting old). Today
is all the prep work which involves squirting that stuff in your eye to dilate
the pupil. I am not sure how long I will
be unable to see to read/write; so I am unsure how thorough tomorrow’s Morning
Call will be. Bear with me.
The Market
Technical
The indices
(DJIA 16535, S&P 1878) had another good day. They finished above their 50 day moving
average. The Dow is a short hair away from negating its developing head and
shoulder formation, while the S&P has not reached that point. The S&P closed within uptrends across all
timeframes: short (1819-1996), intermediate (1773-2573) and long
(739-1910). The Dow remains within short
(15330-16601) and intermediate (14696-16601) term trading ranges (though clearly
it is nearing the upper boundary of its short and intermediate term trading
ranges) and a long term uptrend (5055-17405).
They continue out of sync in their short and intermediate term trends.
Volume was back
on track, declining on an up day; breadth improved. The VIX fell, continuing its year-long
meandering within a short term trading range and an intermediate term downtrend. It remains below its 50 day moving average.
The long Treasury
fell, keeping it within a short term uptrend, above its 50 day moving average
and within an intermediate term downtrend.
GLD declined
again, leaving it within short and intermediate term downtrends and below its
50 day moving average.
Bottom line: stocks
repeated their usual Tuesday ramp, closing near their most recent highs and
setting the stage for another potential leg up.
It won’t take much to (1) push the Dow above the upper boundary of its
short and intermediate term trading ranges which would then put the Averages
back in sync---to the upside and (2) negate the developing head and shoulders
formation. Likely helping matters along,
the FOMC meeting ends today with the usual statement and press conference. Since all news is good news of late when it
comes to the Fed, which should add a boost to prices.
That clearly
supports the notion that the indices will challenge the upper boundaries of their
long term uptrends---although I still believe that the many current internal
Market divergences will act as a governor on the pace of advance as well as the
Averages ability to penetrate those long term upper boundaries. Meanwhile, we have a trendless Market; so
there is really not much to do save using any price strength that pushes one of
our stocks into its Sell Half Range and to act accordingly.
The
latest from Stock Traders Almanac (short):
Fundamental
Headlines
US
economic data yesterday were muddled: weekly retail sales were mixed; the
February Case Shiller home price index was slightly better than expected while April
consumer confidence was a bit worse. Nothing
to get jiggy about.
Overseas,
the news was a bit more negative: the UK first quarter GDP growth was up but
below estimates, April German CPI was down (while everyone is praying for
inflation) and Spanish unemployment was up from an already stratospheric level. To be sure, the bull case on the EU is that
the ECB is going to ease; and all the above provide more reasons for that to
occur. I have opined that the ECB has
room to ease given its recent austere policy; but I wonder about the impact of
even more liquidity sloshing around the global financial system. That said, some experts in Europe are raising
doubts.
The prospects
for an ECB QE (medium):
Here
is the basis for Draghi’s optimism reflected in the above link (medium):
Draghi’s
conundrum (short):
India’s central
banker comments on QE---he is not impressed (medium):
Bottom line: as
long as investors look through the multitude of potential problems, stocks seem
destined to go up. Certainly, the US
economy is a bright spot. The Fed retains
the Market’s confidence, despite the seeming confusion generated by
inconsistent policy statements and its historical inability to manage a
transition from easy to tight money.
Republicans appear hell bent on out-liberaling the dems. But voters keep putting these guys in office;
so they must be satisfied with the results.
Japan, China, the EU and Ukraine
are apparently out of sight, out of mind.
Japan (both short):
China (medium):
Meanwhile, the
latest from Ukraine---which isn’t stabilizing:
What bothers me
is that there is no room in valuations for bad news. To be sure, we may never get any. It still seems prudent to me to have some
cash reserves in case we do
My
bottom line is that for current prices to hold, it requires a perfect outcome
to the numerous problems facing the US and global economies AND investor
willingness to accept the compression of future potential returns into current
prices.
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.
It
is a cautionary note not to chase this rally.
The latest from Paul
Singer (medium and today’s must read):
More on valuation
(medium):
Subscriber Alert
In
our quarterly review of Sysco’s fundamentals, it failed to meet the criteria
qualifying it for inclusion in the High Yield Universe. Accordingly, SYY is being Removed from the
High Yield Universe and will be Sold out of the High Yield Portfolio at the
Market open.
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