Wednesday, October 29, 2014

The Morning Call---All eyes on the Fed

The Morning Call

10/29/14

The Market
           
    Technical

            The indices (17005, 1985) had another gangbusters day.  The Dow finished above the upper boundary of its short term downtrend (15665-16745) for the second day; if it remains above that level through the close on today, the trend will re-set to a trading range.  It also ended within an intermediate term trading range (15132-17158), a long term uptrend (5148-18484) but above its 50 day moving average.

The S&P closed above the upper boundary of its a short term downtrend for the third day, thereby confirming the break and re-setting to short term trading range (1820-2019)  It also finished within an intermediate term trading range (1740-2019), a long term uptrend (771-2020) but above its 50 day moving average.

Volume was abysmal; though breadth improved.  By one measure, the Market is increasingly overbought. The VIX fell 10%, ending within a short term uptrend, an intermediate term downtrend and below its 50 day moving average.  
 
The long Treasury fell, closing within a very short term trading range, a short term uptrend, an intermediate term trading range and above its 50 day moving average.

GLD rose, remaining within a very short term trading range, short and intermediate term downtrends and below its 50 day moving average.

Bottom line: the ‘don’t fight the Fed’ crowd continues to provide upside momentum; although volume is terrible and equities are in extreme overbought territory.  I continue to feel completely out of touch with Market sentiment. When I am, it is always best to do nothing.  Nonetheless, I would use any rise in prices to Sell stocks that are near or at their Sell Half Range or whose underlying company’s fundamentals have deteriorated. 

            Best six months of the year begins in November (short):

    Fundamental
    
       Headlines

            We had a full plate of US economic data yesterday: the August Case Shiller home price index fell versus expectations of an increase, September durable goods orders both the headline number and the ex transportation reading were both negative versus estimates of a rise, weekly retail sales were positive, the October consumer confidence index was a blowout number as was the October Richmond Fed manufacturing index.  By volume this data was a plus; however, the durable goods orders were by far the most important, so I would judge the day as a wash.

            Overseas, there were no reported stats; however, there was a slew of negative articles on China, Japan and the EU.

            China’s ‘ghost’ cities (medium):

            Can China achieve a ‘soft’ landing? (short):
           
            Head of Bank of Japan lies and lies and then lies some more (medium):

            Eurozone remains challenged (short):

            Why the ECB stress test was a farce (medium and today’s must read):

            None of this made any difference because the QEInfinity dreamweavers were anticipating some kind of good news out of the Fed today.  Maybe so. 

            Bottom line: if the Fed stays loose, it would seem to indicate that the EU recession/deflation scenario is alive and well and living in the Eccles Building.  If it tightens, well we are back of looking at the charts following QEI, II and III---which were not pretty.

            I won’t even attempt to guess what Yellen et al will do today.  But I am unshaken in our investment strategy.

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.

            The latest from John Hussman (medium):

            For the bulls (medium):

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