The Morning Call
5/7/14
The Market
Technical
The
indices (DJIA 16401, S&P 1867) turned in another volatile day in what has become
trading range since the first of the year.
However, none of the technical factors changed: both remained above
their 50 day moving averages, both are above their late April lows---keeping a
very short term uptrend in place; however, they clearly are no closer to either
their all-time highs and the S&P is still developing a head and shoulders
formation.
The S&P
closed within uptrends across all timeframes: short (1824-1991), intermediate
(1778-2578) and long (739-1910). The Dow
remains within short (15330-16601) and intermediate (14696-16601) term trading
ranges and a long term uptrend (5055-17405).
They continue out of sync in their short and intermediate term trends.
Volume was flat
(and low): breadth was down. The VIX
rose but remains within its short term trading range, its intermediate term
downtrend and below its 50 day moving average.
More
divergences (short):
The
long Treasury resumed its upward march, finishing in a short term uptrend,
above its 50 day moving average and within an intermediate term downtrend.
More
on bonds. The theories on higher bond
prices are coming fast.
GLD fell (again),
closing within short and intermediate term downtrends and below its 50 day
moving average.
Bottom line: yesterday’s
pin action was just as noteworthy as Monday’s; only for the opposite
reason. The news flow was generally good
both here and abroad; plus it was Tuesday---which has been the strongest day of
the week the last couple of months. Most
likely both days are simply reflective of another round of investor
schizophrenia. There have been plenty
such occasions throughout this upward trending market; and, to date, they have
all been resolved to the upside. While ‘to
date’ are the operative words, until proven otherwise, the assumption has to be
that we will get the same outcome this time.
That said, given
the increasing number of divergences (not the least of which is the rising bond
market), sooner or later that pattern will change. However, until it does, I see no reason to
alter the thought that the Averages will challenge the upper boundaries of
their long term uptrends.
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.
Price
movement by the day of the week (short):
Regression to trend
(short and a must read):
Fundamental
Headlines
There
were only two secondary US economic indicators reported yesterday: weekly
retail sales were mixed and the March trade deficit was less than
anticipated. Hardly worth mentioning.
Overseas,
there was not much going. The EU reported
April PMI better than expected. Even
Ukraine was more quiet than usual.
Latest
from Ukraine:
Is
this more fallout from (our mishandling of) Ukraine (short):
Bottom line: Almost
no news---so there was no changes in the fundamentals. Virtually no volume and there was little
change in the technicals. Stocks remain
overvalued but momentum still lies with the bulls. So I
think that until investors get really worried about something for more than a
day or two, prices will likely continue to rise. The question is, is the bond market telling
us that ‘something to worry about’ is upon us.
We will know soon enough.
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.
More
on valuation (medium):
The
banks are at it again (medium and today’s must read):
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