The Morning Call
12/11/14
The Market
Technical
The indices
(DJIA 17533, S&P 2026) suffered some major whackage yesterday; and unlike
Tuesday, the buy the dip crowd sat on its hands. Nevertheless, both remained within uptrends
across all timeframes: short term (16197-18943, 1866-2230), intermediate term
(16164-21129, 1709-2425) and long term (5360-18860, 782-2071). Both remained above their 50 day moving
averages, though the S&P isn’t that far away (circa 2000).
Volume
rose; breadth was awful. The VIX soared
25%, closing within a short term trading range, an intermediate term downtrend
and above its 50 day moving average.
The
long Treasury was up again. It finished
within a very short term uptrend, a short term uptrend, above its 50 day moving
average and above the upper boundary of its intermediate term trading
range. If it remains above this boundary
through the close next Monday, the intermediate term trend will re-set to up.
And
(short):
GLD
fell slightly, but ended above the upper boundary of its short term downtrend
for the second day. If it closes there
today, the break of the short term downtrend will be confirmed and the trend
will re-set to a trading range. It also
finished above the lower boundary of its former long term trading range, having
been there for thirteen of its last sixteen trading days. If the break of the short term downtrend is
confirmed, I am going to change the long term trend back to a trading range
from a downtrend. GLD remained within an
intermediate term downtrend and above its 50 day moving average.
Bottom line: based
on the absence of any bounce back during yesterday’s severe downturn, I assume means
that the ‘buy the dippers’ are at least starting to get a bit fidgety. Not that they are going away, maybe just
taking a time out. On a long term basis,
there is no reason to be concerned about stocks given the considerable distance
that exists between current price levels and the Averages’ lower boundaries of
their short and intermediate term uptrends.
Shorter term, traders may be concerned that there is no visible support
before Dow 17173/S&P 1904.
What might give
traders as well as investors pause, is the pin action in TLT. Having just re-set its very short term trend
to up, it is now challenging the upper boundary of its intermediate term
trading range. A break of that trend
would be a powerful sign that investors are worried about either a recession
here or some jolting events overseas.
Neither would likely be good for stocks.
GLD’s also
appears to be reversing its broad trend.
Granted that it hasn’t occurred yet and if it does, it won’t be as
strong a signal as that from TLT.
Nonetheless, it would reinforce the notion that investors are seeking a
safe haven.
Fundamental
Headlines
Only
two secondary US stats were reported yesterday: weekly mortgage and purchase
applications were both up while the US November budget deficit was below
forecasts. Nothing here.
On
the political front, the good news is that congress will pass a FY2015 funding
bill (ex Homeland Security), with the spending level basically flat with
FY2014; the bad news is that the GOP, in its first order of business,
demonstrated that it was still in the banksters’ pocket to the detriment of you
and me. Specifically, it attached a
provision to the funding bill that would negate a Dodd Frank regulation that
forces the big banks to divest their derivatives trading operations---which you
and I will pay for if they fuck up (again).
Overseas, the
string of bad economic news just won’t stop: Japanese consumer confidence
declined, the IMF identified a $15 billion shortfall in Ukraine’s current
budget which would be on top of the latest projections for a $17 billion loan
and Iran forecasted oil would go to $40 a barrel.
And in a leaked
ECB memo, it appears that EU QE has been put on indefinite Hold (medium):
Plus in the
political arena, we received two gems: Ukraine invited in Russian ‘specialists’
to help ‘de-escalate’ the conflict. What
could possibly go wrong in this scenario?
(think fox in the henhouse); China CPI was up less than expected, which
at least initially, produced the narrative (hope?/prayer?/mirage?/delusion?) that
lower inflation meant that the Bank of China had room to pursue a more
accommodative monetary policy. We’ll
see.
But
put all the above aside, because what held investor attention for most to the
day was that the price of oil continued to get pummeled---and stocks followed
suit. But wait, I though you said the oil price decline was an unmitigated
positive. If you didn’t read David
Stockman’s piece on the Fed and oil in yesterday’s Morning Call:
And the rig
count (short):
***overnight, in
another on again, off again move, the Bank of China added to banking reserves;
Norway’s central bank lowered its main interest rate as fears of recession
mount (remember it’s economy is closely tied to the oil industry [another
unmitigated positive]); the ECB held it second TTLRO (ECB buys bank assets but
for only three years) and it was better than the first but still well short of
expectations; and Greece inches closer to default/exiting EU.
Bottom line: the
problems are starting to mount. Not only
are the economic numbers from everywhere on the global except the US for shit;
now (1) questions are being raised about QE in two big players [EU and China],
the other big printer [Japan] is sinking into an economic abyss and the only
question is how long is the electorate going to tolerate it and (3) then we
find out that cascading oil prices may be as much to do with weaker demand
[slowing economic growth] as it does with rising supply and therefore, are not quite
as positive as all those gurus said it was.
Of course, none
of this means diddily as long as investors continue to view life through rose
colored glasses; and we are not going to have a good read on that for another
1000 or so Dow points. Unfortunately,
another 1000 Dow points would only the beginning of any mean reversion of price
to value.
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 Doug Kass (medium):
Subscriber Alert
Having
taken OKS off the High Yield Buy List yesterday following its break below the
lower boundary of its Buy Value Range, the stock proceeded to fall an
additional 7% in yesterday’s trading.
That takes it below our Stop Loss Price.
Accordingly, the stock will be Sold at the Market open.
Western
Energy (WES) has fallen below the lower boundary of its Buy Value Range. Hence, it is being Removed from the High
Yield Buy List. The High Yield Portfolio
will continue to Hold this stock.
Investing for Survival
Markets
are always tempting us to make mistakes (medium):
Part
two: securities based lending. If you
have been tempted into taking out a loan using your 401k or any other portfolio
as collateral, this is a must read. If
you haven’t but like a perfect example of yet another exogenous event that
could sink the market, it is a good read.
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