The
Morning Call
9/9/14
The Market
Technical
The
indices (DJIA 17111, S&P 2001) rested a bit yesterday. The S&P remained in uptrends across all
timeframes; short term (1941-2142), intermediate term (1990-2700) and long term
(762-2014); it also closed above its 50 day moving average. The Dow finished within its short term
trading range (16331-17158), its intermediate term trading range (15132-17158),
its long term uptrend (5101-18464) and above its 50 day moving average.
Volume
was down; breadth weak. The VIX rose but
continued to trade within its short and intermediate term downtrends and below
its 50 day moving average.
The
long Treasury advanced fractionally, closing within its short term uptrend, an
intermediate term trading range and above its 50 day moving average.
GLD
fell, finishing within its short term trading range (though it is nearing its
lower boundary), its intermediate term downtrend and below its 50 day moving
average.
Bottom line: the
Averages remain out of sync as the Dow has been unable to successfully
challenge the upper boundaries of its short and intermediate term trading
ranges. However, it is clearly near
17158 and I expect that it will eventually bust that barrier and re-set its
short and intermediate term trends to up.
However, getting
above the upper boundaries of their long term uptrends will likely be a much
more difficult undertaking because (1) the longer the trend, the more the
resistance to violating that trend and (2) those upper boundaries are near
valuation levels that are at historic highs so there is less incentive for
investors to get aggressive to the upside.
That said, as
long as investors continue to interpret both good and bad news with the same benign
equanimity, momentum will remain to the upside; though growing divergences bear
witness to the fact that progress will become increasingly labored. Nevertheless, in the absence of an exogenous
shock or some ‘emperor’s new clothes’ moment, the more accommodative than
anticipated stance by the Bank of Japan and the ECB should keep the global
liquidity pumps humming at full speed and that could provide the power for
prices to move higher---the net result of which will be to climb a higher cliff
from which to fall.
Our strategy
remains to Sell stocks that are near or at their Sell Half Range or whose
underlying company’s fundamentals have deteriorated.
Technical update from Andrew Thrasher (medium):
Fundamental
Headlines
There
were no US stats yesterday though there was an update on consumer
credit---which is growing largely as a function of auto and student loans.
Overseas,
Japan announced that its second quarter GDP had been revised lower---the
current one reflecting a -7.1% annualized rate of growth. Given the present rate of success under its
present QE regime, then surely a double digit rate of decline in economic
activity can’t be that far away under the new improved QE recently implemented
by the Bank of Japan.
On
the political front:
(1) in
the US with our ruling class back in DC and anxious to make the six o’clock
news, Jack Lew started making noises about corporate inversions [acquisitions
to change the country of residence in order to lower taxes]; but that is all
they were. Congress has no desire to
attack a tax issue going into elections, all the ‘fair’, ‘right’, ‘patriotic’
bullshit rhetoric notwithstanding.
(2) the
rubber is starting to meet the road in the EU/Russia sanctions standoff; that
is, the EU is having to weigh how much any energy sanctions will hurt Russia
against how soon it might need Russian supplies; and there was some evidence of
European ‘crawfishing’ as the vote on those energy sanctions draws near. I haven’t a clue how this standoff on energy
will resolve itself---but I repeat that in my opinion the Europeans have less
will power and less moral suasion over their electorates than Putin.
http://www.zerohedge.com/news/2014-09-08/here-why-europe-just-launched-nuclear-option-against-russia
(3) suddenly,
the upcoming Scottish referendum vote [whether or not to stay a part of the United
Kingdom] is taking on the mantle of a big deal.
Investors have known this vote was coming forever; so it’s certainly no
surprise. But as it draws nigh, concerns
are mounting---like how would UK debt, reserves, North Sea oil, etc. get
allocated.
And
Bottom line: I
wouldn’t rate yesterday’s news flow as positive: US consumer credit is near
highs---being driven by (subprime) auto loans and student loans. Seems like we had problems with too much
(bad) debt in the not too distant past.
Those Japanese GDP numbers were horrible. And the Europeans are dancing around like a
six year old that needs the toilet. They
may impose the proposed energy sanctions, but they will have put themselves in
a vulnerable position over which they exercise only marginal control. I would feel a lot more confident in their
success if somebody would demonstrate a little gumption.
The point here
being that yesterday’s pin action was pretty placid in the face of this news. Both TLT and GLD markets certainly looked
like they are not worried about growth, QE, inflation or an EU/Russian
standoff. This all suggests to me that a
decent bid remains under the market; so further advances seem likely---the
extreme valuation of equities notwithstanding.
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):
Update
on the Buffett indicator (medium):
Investing for Survival
Ignore
expert predictions (medium):
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