The Morning Call
The Market
Technical
The indices
(DJIA 17879, S&P 2066) recovered Monday’s losses yesterday, leaving them within
uptrends across all timeframes: short term (16142-18888, 1861-2225),
intermediate term (16110-20175, 1704-2420) and long term (5159-18521, 783-2070). They also finished above their 50 day moving
averages.
Volume fell; breadth
recovered nicely. The VIX declined 10%,
closing back below the lower boundary of its short term uptrend and its 50 day
moving average. It remained within an
intermediate term downtrend.
The long
Treasury was down again, finishing within its very short term trading range, a
short term uptrend, an intermediate term trading range and above its 50 day
moving average.
The potential of
lower oil prices to increase defaults (medium):
GLD was off but
remained above the lower boundary of its former long term trading range. It has closed above that boundary 7 out of
the last 9 trading days---a plus for those hoping that a bottom is being
made. On the other hand, it can’t
develop the momentum for a follow through---a negative. Further, it dropped back below its 50 day
moving average.
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: after
absorbing bad economic news and a highly volatile oil price on Monday,
investors received just what they wanted yesterday---another central bank
talking monetary ease (China). As a
result, the movement around all those boundaries that I mentioned in yesterday’s
Morning Call was generally positive.
Nevertheless, they remain in play and follow through (or lack thereof) is
still needed before there is technical clarity.
Fundamental
Headlines
The
economic news in the US consisted of mixed weekly retail sales, much less than
expected Cyber Monday sales and far better than expected October construction spending. The latter being by far the more important
number and quite encouraging.
Overseas,
rumors flew that the Bank of China will ease monetary policy further and the
Russian government estimated 2015 economic growth at -0.8%. As you might expect, the thought of the
Chinese joining the QE crowd got everyone a twitter.
***overnight,
the EU November flash services PMI fell 0.3% while the composite PMI dropped
0.9%
Oil
and its price remained front and center in both the print and TV media with the
general consensus being reasonably upbeat.
Counterpoint:
the financialization of oil (medium):
***November
new applications for oil and gas drilling permits fell 40%.
Bottom line: the
October construction spending number gave us the first meaningfully positive
economic data this week. Let’s hope that
continues and offsets last week’s data. Unfortunately,
the only international economic datapoint (Russian economic growth) was just
more of the same discouraging news from around the world. As you know, I believe that a global
recession is the number one risk to our forecast.
However, even if
there is no recession, even if the US economic growth picks up, even if
interest rates remain low and inflation tame, even if corporate profits
continue to rise, even if oil prices stabilize at current low levels, stock
prices more than adequately these positive economic scenario.
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.
Real
Japanese wages continue to fall (short):
In
the US as well (short):
A
bear market masquerading as a bull (short):
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