Wednesday, January 21, 2015

The Morning Call---ECB QE solves everything

The Morning Call

The Market

More intraday volatility yesterday, though the indices (DJIA 17515, S&P 2022), finished near the flat line; so they remained within uptrends across all timeframes: short term (16443-19215, 1905-2886), intermediate term (16447-21612, 1732-2446) and long term (5369-18860, 783-2083). 

The Averages advanced at the same pace as the ascending lower boundaries of those pennant formations; so they ended right on those boundaries as they did Friday.  I noted on Saturday, that those boundaries are now acting as resistance.  Therefore, until they break back above those boundaries indicating that last week’s Wednesday/Thursday’s decline was a false flag, I think this action still has be labeled as negative.

            Thoughts from TraderFeed (short):

            Volume fell; breadth was mixed to negative.  The VIX was down, remaining within a very short term uptrend, a short term trading range, an intermediate term downtrend and above its 50 day moving average. 
            The long Treasury continued to move up, ending within a very short term uptrend, above the upper boundaries of both its short and intermediate term uptrends, within its long term uptrend and above its 50 day moving average.  I continue to believe that TLT is getting stretched to the upside and that some consolidation is likely.
            GLD rose again, closing above the upper boundaries of both its short term trading range and intermediate term downtrend.  Under our time and distance discipline, the short term trend re-sets to up; and if GLD remains above the upper boundary of its intermediate term downtrend though the close today, that trend will re-set to a trading range.  This chart looks more and more like a bottom.  That said like TLT, GLD needs a little consolidation.  When that occurs, our Portfolios will likely start to nibble.

Bottom line: taken by itself, yesterday’s price action left the indices’ direction in question.  On the other hand, the long bond and gold are experiencing an extraordinary upside move which suggests more global economic/security instability and the rising probability that the US equity Market will not go untouched.  That said, given the current level of volatility, forward looking statements have to be taken lightly.

            The latest from Andrew Thrasher (medium):

            More on the January effect (short):

            Update on the dollar chart (short):



            Only one economic indicator reported yesterday and it was neutral: the January National Association Homebuilders index was flat.  Nothing. 

On the economic/political front, we did get an advanced look at Obama’s state of the union speech tonight.  He will proposed increased a capital gains tax rate and nullifying the capital gains tax exemption of appreciated assets in estates.  Money to be spent on middle class tax credits and the promise of a free two year community college education.  I would piss and moan about these proposals if they had a snow ball’s chance in hell of passing.  But they don’t.  I will point out that this is more ideological positioning instead of any well-meaning attempt at real tax reform.

Finally, the stream of poor disappointing earnings reports (and/or guidance) continue---this time from Morgan Stanley, Johnson & Johnson and IBM.

Investors also had a lot of overseas data to digest: the Shanghai Composite was down over 7% as officials suspended three broker/dealers for margin finance and securities lending violations; China reporting 2014 GDP growth at the slowest in 24 years, the IMF lowering its 2015/2016 global GDP estimates; Denmark lowering its central bank rate and Turkey announcing that its central bank will lower their rate today; a resumption of the decline in oil prices; and last but not least renewed violence in Ukraine and an attempted coup in Yemen.

In short including the poor earnings reports, there was a lot of bad news to work through.  But not to worry because all eyes are on the ECB meeting on Thursday, anticipating it joining the QEInfinity crowd---even though, a lot of the guys that I listen to are convinced the ECB doesn’t have the tools to get close to a US or Japanese style QE.  The good news is that we will know tomorrow.

            John Mauldin on the Swiss revaluation and an EU QE (as always a bit long but worth the read):

            The endgame for central banks (medium):

            ***overnight, the Bank of Japan reduced its inflation expectations but still held off expanding QE further.  I thought that the whole point of its QE was to get inflation up to 2%.  (medium):

Bottom line:  the news flow yesterday was pretty lousy save for Denmark and Turkey joining the QE mania and the anticipation that tomorrow the ECB will throw in its lot. So apparently the damage done by the Swiss revaluation to central bank credibility was not enough to squash enthusiasm for more QE.  Nevertheless, I don’t see how we can ignore the implications of a lousy start to this earnings season, the poor economic reports from overseas, more instability in oil and geopolitical flare ups in Ukraine and Yemen.  Of course, the central banks have been papering over problems with aggressive money printing for six years.  I just worry about it all coming to an end.

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.

      Investing for Survival

            Renouncing citizenship (Part 1)

    News on Stocks in Our Portfolios
·         International Business Machines (NYSE:IBM): Q4 EPS of $5.81 beats by $0.40.
·         Revenue of $24.11B (-13.0% Y/Y) misses by $660M.
·         2015 guidance to be provided on conference call.


   This Week’s Data

            The National Association of Homebuilders’ January index reading (57) was flat with December’s and slightly below expectations (58).

            Weekly mortgage applications rose 14.2% but purchase applications fell 3.0%.

            December housing starts increased 4.4% versus estimates of an advance of 1.2%.


            Stupid auto loans vicious cycle (medium):

            Dovish FOMC member thinks that it’s time to raise rates (short):



A review of the latest House immigration bill (medium):


            Fighting continues in Ukraine (medium):

            Government in Yemen in disarray after presidential palace is seized (medium):

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