Tuesday, July 8, 2014

The Morning Call---A pause that refreshes

The Morning Call

7/8/14

The Market
           
    Technical

Yesterday, the indices (DJIA 17024, S&P 1977) paused to digest last week’s gains.  They remain above their 50 day moving averages and within uptrends across all time frames: short (16145-17624, 1901-2068), intermediate (16422-20781, 1843-2643) and long (5083-18464, 762-1999). 

Volume fell; breadth was really terrible---much worse than seems normal for small down day.  The VIX popped 10%, but remained within very short term, short term and intermediate term downtrends and below its 50 day moving average

The long Treasury recovered some of its losses from last week, bouncing off what is the lower boundary of its new short term trading range.  However, it remained below its 50 day moving average.  It is also within an intermediate term trading range.

GLD was off fractionally.  While it is in a very short term uptrend and above its 50 day moving average, it is in a short term trading range and an intermediate term downtrend.

Bottom line: yesterday’s quiet down day was to be expected after last week’s robust performance.  Volume was low, as you might think, though I was struck with how very poor the breadth numbers were.  I have no idea whether that is a sign of things to come; but until we get some serious whackage to prices, it is best to assume that it was an outlier.  So my expectation remains that the Averages will assault the upper boundaries of their long term uptrends. 

That said, the pin action in the bond and gold markets continues to create enough uncertainty that I don’t think an upside spike is in the offing.  As I noted in last weekend’s Closing Bell, our ETF Portfolio did lighten up on its bond position, but I have done nothing with GLD.

 As far as stocks are concerned, 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.

            Update on sentiment (short):

    Fundamental
 
     Headlines

            No economic releases yesterday.  That starts a week that will be very light on economic data, save the release of the minutes of the last FOMC meeting---which I am sure will be entertaining and regale the masses.
           
            With the ruling class on break, there is also not likely to be much news domestically except for the usual election posturing.

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 John Hussman (medium):

            Systematic suckers (short):

            An interview with three legendary investors (medium):

            The Buffett indicator (medium):

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