The Morning Call
12/2/14
The Market
Technical
The indices
(DJIA 17776, S&P 2053) drifted lower, but they are still within uptrends
across all timeframes: short term (16142-18888, 1861-2225), intermediate term
(16103-20168, 1704-2420) and long term (5159-18521, 783-2062). They also finished above their 50 day moving
averages.
Volume was up;
breadth horrible. The VIX jumped 7%, closing
within a short term uptrend, an intermediate term downtrend and back above its
50 day moving average.
Update on sentiment
(short):
The long
Treasury fell, bouncing down from the upper boundary its very short term
trading range but remaining within a short term uptrend, an intermediate term
trading range and above its 50 day moving average.
GLD was up 4%. It not only ended back above the lower
boundary of its former long term trading range for the third time but also
above its 50 day moving average and very close to the upper boundary of its
short term downtrend---and did so on big volume. So the battle continues over the validity of
the lower boundary of its former long term trading range. As I have noted, how this tension gets
resolved may determine where the bottom is in the current downtrend and will
likely indicate near term price direction.
Meanwhile, it finished within short, intermediate and long term
downtrends.
Bottom line: the
Averages had to digest a load of bad economic news plus a schizophrenic oil
price; but did so fairly well---which is encouraging. Meanwhile, the S&P is pushing against the
upper boundary of its long term uptrend, TLT bounced off the upper boundary of
its very short term trading range, GLD rallied hard finishing back above the
lower boundary of its long term trading range for the third time and above its
50 day moving average to boot and the VIX failed at its attempt to break below
its short term uptrend. Notice the
pattern? A lot is going on in numerous
markets. I am not suggesting that is bad
news; indeed, it could be great news depending on how those indices treat those
boundaries. But caution is warranted
till we get follow through.
Technical
update from Andrew Thrasher (medium):
Fundamental
Headlines
Yesterday’s
US economic news was mixed: Markit PMI came in below expectations while the ISM
manufacturing index was better than anticipated.
The
most discussed item was oil prices which resemble the kangaroo in the old Bugs Bunny
cartoons. The proximate cause of the
latest round of volatility was the OPEC meeting where production levels were
left unchanged. I have dwelled on this
subject constantly both the positive (lower consumer prices and industrial
costs) and the negatives (potential layoffs and debt defaults) and, as you
know, have admitted that I have no idea where the net positives start being
offset by the net negatives.
The
one thing that I do know is that as long as oil is experiencing the kind of
volatility that it has of late, there remains the potential for disruptive
events whether they are economic (impact on consumer spending) or market (oil
traders have been crushed) related. So
we want to watch oil prices carefully and be sensitive to any visible effects that
might occur. I know that is a pretty
vanilla conclusion; but expertise on oil economics is not my long suit. Hence, since I have no great insight, I would
prefer the sidelines until the smoke clears.
More on
declining oil prices (short):
Overseas,
the news was almost universally bad: Moody’s downgraded Japan’s credit rating, the
Swiss gold referendum failed, US retail sales over the Thanksgiving weekend
were down 11%, China November manufacturing PMI was down to an eight month low,
November EU manufacturing was PMI down and the October reading revised lower. Bright spot: the UK November manufacturing PMI up slightly.
***overnight,
rumors abound that the Bank of China will ease further, the Russian government
estimated 2015 economic growth at -0.8% and Cyber Monday sales were up 8%
versus forecasts of up 13%.
Bottom line: as I
noted yesterday, last week was disappointing for US economic data and this week
is off to a less than stellar start.
Perhaps even worse, the rest of the world shows no sign of halting its economic
decline, much less stabilizing. And the
volatility in oil prices, while not necessarily bad, does provide the potential
for unnerving events. Add the fact that
stocks are outrageously priced and it seems a good time to be considering
taking some risk off the table.
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.
Update
on valuation (short):
The
latest from John Hussman (medium):
2014
GAAP versus non-GAAP earnings (short):
Goldman’s
forecast for 2015 (medium):
Investing for Survival
Beware
of post-election forecasts (medium):
No comments:
Post a Comment