The Morning Call
6/17/14
The Market
Technical
The
indices (DJIA 16781, S&P 1937) seemed to gain a little bit more traction
yesterday, closing above their 50 day moving averages and in uptrends across
all time frames: short (16045-17524, 1874-2041), intermediate (16263-20624, 1818-2618)
and long (5081-18193, 757-1974).
Volume
fell; breadth was mixed. The VIX rose,
but remained within very short term, short term and intermediate term
downtrends. Andrew Thrasher has some
interesting comments on the VIX in the link at the bottom of this section.
The
long Treasury was up, though it continues to sit right on the lower boundary of
its short term uptrend---a potential negative.
On the other hand, it is back above the upper boundary of its former intermediate
term downtrend---a positive. It is also
well within its intermediate term trading range and above its 50 day moving
average.
GLD
fell, but is pushing against the upper boundary of its very short term downtrend. It remains within short and intermediate term
downtrends and below its 50 day moving average.
Bottom
line: in the last week, the Averages have
been working off an overbought condition without panicking over the (rising oil
prices) escalating turmoil in Iraq. What’s
not to like? There are some cautionary
notes recently published by several noted technicians, but even those warnings
were for very short term weakness---nothing to call into question any of the uptrends
whatever the timeframe. So until, investors
decide to worry about any of the multitude of risks facing the Market, the
Averages will likely remain on track to challenge the upper boundaries of their
long term uptrends, if not the next set of ‘round numbers’ (Dow 18,000/S&P
2000).
Our strategy remains to do nothing save taking
advantage of the current momentum to lighten up on stocks whose prices are
pushed into their Sell Half Range or whose underlying company’s fundamentals
have deteriorated.
Thrasher’s
weekly technical update (medium):
The
latest from Stock Traders’ Almanac (medium):
Fundamental
Headlines
Two
economic datapoints were released yesterday and they were both positive: the
June NY Fed manufacturing index and May industrial production. So the economic progress in this country
remains on track.
Update
on big four economic indicators:
The
Iraqi political stability continues to deteriorate which is keeping the oil
markets jittery. As you know, I dwell constantly
on rising oil prices as one of the primary risks to our economy. Not that investors care. They basically slept through the Ukrainian
turmoil and have been extraordinarily sanguine about Iraq.
I have no idea
whether either one of the above will degenerate enough to spike energy prices
to levels that will start to impede economic growth; but neither situation is
resolved and both have an emotional nationalistic (tribal?) component that
could potentially overwhelm rational economic thought processes. So the risk is real and it doesn’t seem to be
going away.
Bottom line: nothing
has really changed since the last note. The
US economy continues to grow sluggishly.
The rest of the global is a mess: housing and a potential financial
scandal (metal re-hypothecation) in China, poor economic numbers out of Japan, the
Ukrainian maze and who knows what the mounting internecine struggle in the
Middle East will bring. Meanwhile stocks
are priced for perfection---apparently in no small measure as a result on global
central bank purchases. And who knows
better about investing in the stock market?
I couldn’t dream up a weaker set of buyers (stockholders) than a bunch
of self-serving bureaucrats. God help us
when things start going south.
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 the central banks’ purchases of stocks (medium):
More
on Chinese financial problems (medium):
Oil
prices and stock prices (medium):
Great
article providing the historical context behind the current violence in Iraq and
the US role in it all (long but a must read):
Overnight
news from Iraq (short):
And
Ukraine (short):
Subscriber Alert
The
stock price of Canadian National Railway (CNI-$63) has traded into its Sell
Half Range. According, the Dividend
Growth Portfolio will Sell Half of its position at the Market open.
Investing for Survival
What
is your biggest fear? (medium):
The
Fed is considering imposing ‘exit’ fees on bond funds (medium and a must read):
And
other problems resulting in a lack of liquidity (medium):
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