The Morning Call
8/27/14
I am leaving this afternoon for
the mountains and will return Sunday.
Have a great Labor Day Weekend.
The Market
Technical
The
indices (DJIA 17106, S&P 2000) had another up day. The Dow remained within its short term
(16331-17158) and intermediate term (25132-17158), though it continues to inch
toward the upper boundaries. It also
closed within its long term uptrend (5101-18464) and above its 50 day moving
average.
The
S&P finished above the upper boundary of its short term trading
range/all-time high (1814-1991) for the second day. A close above 1991 today will re-set this
trend to up. It also ended within intermediate
term (1890-2690) and long term (768-2014) uptrends and above its 50 day moving
average.
Volume
declined again; breadth was mixed. The
VIX fell, finishing within short and intermediate term downtrends and below its
50 day moving average.
The
long Treasury dropped but remained within its short term uptrend, its
intermediate term trading range and above its 50 day moving average.
GLD
rose, leaving it within that developing pennant formation as well as its short
term trading range and intermediate term downtrend.
Bottom line: the
march to all-time highs and the upper boundaries of short term and intermediate
term trading range seems unstoppable. No
one is bothered by the anemic volume, the meager breadth or that September/October
are historically the worse months for performance.
As I said
yesterday, it sure seems like we will see trend re-sets this week---the first
and most obvious being the S&P short term trend re-setting to up. In the end, I think that both of the Averages
will re-set all trends across all timeframes to up. Muscling through the upper boundaries of their
long term uptrends should take a lot of work. These are valuation levels that
historically made investors hesitate to push higher. In addition, for that to happen, the indices
are going to have to get some help from all those stocks that have to date been
creating the multiple divergences I keep referring to. It could happen; but so far, they have been as
stubborn in their noncompliance as the big stocks that have carried the
Averages higher have been in their relentless advance. Clearly, something has to give.
Our strategy
remains to Sell stocks that are near or at their Sell Half Range or whose
underlying company’s fundamentals have deteriorated.
Fundamental
Headlines
Yesterday’s
US economic news was mixed and confusing.
Weekly retail sales were up, the August Richmond Fed manufacturing index
was considerably better than anticipated while the June Case Shiller home price
index was below expectations. These, of
course, are all secondary indicators, so they are not of overwhelming
importance.
On
the other hand, the July durable goods orders (which are important) were very
confusing and could be interpreted at the pleasure of the interpreter. The headline number was a blockbusting +22.6%
versus expectations of +5.1%; however, ex transportation, the reading was -.8%
versus estimates of +.4%. In other
words, there were a lot of big aircraft order---which to be sure is a plus
(especially if you are Boeing). But the
bad news was that orders fell for the rest of the economy as a whole. So if you are in the growth and inflation
camp, the +22.6% fits right in. If you
are in the slowdown/possible recession crowd -.8% supports your forecast. Probably the best thing to do is write this
report off as too confusing to provide meaning and wait for next month’s
number.
***overnight,
Chinese industrial commodities are plunging in wake of a weak sentiment
reading.
Bottom line: that
said, the Market itself remained the center of attention with virtually everyone,
in the media at least, focused on whether the S&P would close over
2000. Well, it did; and a happy as that
made many, it only made stocks more expensive.
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.
Is
this rally on solid ground? (medium):
The
high yield market is on shaky ground (medium):
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