The Market
Technical
The indices
(DJIA 17900, S&P 2071) rested yesterday; they were down only fractionally,
so there was little to be concerned about. The Dow remained in uptrends across all
timeframes: short term (16161-18907), intermediate term (16135-21100) and long
term (5159-18521). The S&P did the
same for its short (1861-2225) and intermediate (1704-2420) term uptrends. It closed right on the upper boundary of its
long term uptrend (783-2070). Under our
time and distance this counts as a second day of a potential violation; so if
the S&P remains above the ascending upper boundary of its long term uptrend
through the close next Wednesday, the boundary will be subject to change if the
Dow also breaks above its comparable boundary.
Both finished above their 50 day moving averages.
Volume fell;
breadth deteriorated. The VIX declined,
remaining below the lower boundary of its short term uptrend for the third day
thereby confirming the break of this range.
It will re-set to a trading range (a plus for stocks). VIX remains within an intermediate downtrend and
below its 50 day moving average.
Update on sentiment
(short):
The long
Treasury had another good day, again finishing very close to the upper boundary
of its very short term trading range. It
is within a short term uptrend, an intermediate term trading range and above
its 50 day moving average.
GLD fell,
bouncing off of the upper boundary of its short term downtrend, although it
remained above the lower boundary of its former long term trading range.
‘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.’
A meaningful
follow through in either direction will resolve this issue; but until it
happens, GLD is in no man’s land.
Bottom line: the
S&P is struggling with the upper boundary of its long term uptrend as I assumed
that it would. As you know, I have my
doubts about whether it can decisively break through this barrier. Though the general tone of the Market
narrative right now suggests that a successful challenge can be made, the post
today from TraderFeed (see below) reinforces my skepticism.
As I noted above
the VIX has broken through the lower boundary of its short term uptrend---a
positive for equities; the long bond is trying to break out of its very short
term trading range---a plus for bonds but less so for equities (think slowing
economic growth); and GLD looks like it is trying to establish a bottom---and
frankly, I am not sure what that is telling us fundamentally.
The
latest from TraderFeed (one of the best) (short and a must read):
A
closer look at the Santa Claus rally (medium):
The
sixth year (of the presidential cycle) pin action pattern suggests further
gains (short):
Fundamental
Headlines
November
retail sales were generally upbeat though there was some disappointments and notable
downgrades of forecasts; weekly jobless claims fell more than anticipated. That continues the mixed picture on the US
economy, which under our scenario is good news.
Overseas,
the big news was that the ECB left interest rates unchanged, which was followed
by a promise from Draghi that QE was coming soon, which was followed by an
article in a German newspaper that Draghi had lost a majority of votes on his
board. Not good for the QEInfinity
crowd.
***overnight,
the Japan Times reported that corporate bankruptcies in November have risen to
a record high; the Bundesbank lowered its forecast for Germany’s 2015 GDP
growth. On a brighter note, German
factory ordered advanced 2.5%.
Oil
prices continue to hog the press space and media time with consensus remaining
firmly in the optimists’ camp. The two
links below provide something of a counterpoint:
Do
lower oil prices really lead to higher consumer spending in other sectors? (must
read):
Or
do they lead to higher stock prices (medium):
Bottom line: the
US economy continues its erratic progress, but that is good news. The ECB didn’t
lower rates (which is bad news for the QE enthusiasts) but promised that it
would (that is good news); then the fun was spoiled by a German newspaper article
that said Draghi had lost his majority vote on the ECB board (that is bad
news). The biggest problem remains
little to no growth in the rest of the world.
The biggest uncertainty is how the decline in oil prices ultimately
impacts the US as well as the global economies.
I still can’t
come up with a realistic economic scenario that would warrant stock prices at
current levels. I can, however, see how
QEInfinity keeps the music playing. I
just don’t have the stomach to be fully invested when that happens.
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 Bill
Gross (medium and a must read):
Investing for Survival
Be
smart about charitable giving (medium):
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