Thursday, January 8, 2015

The Morning Call---The Fed comes to the rescue, again

The Morning Call


The Market

The indices (DJIA 17584, S&P 2025) finally rallied, but remained below their 50 day moving averages.  They closed within uptrends across all timeframes: short term (16372-19172, 1889-2251), intermediate term (16372-21541, 1727-2343) and long term (5369-18860, 783-2083).

            Volume fell; breadth improved.  The VIX drifted lower but finished within its short term trading range and intermediate term downtrend. 

            The long Treasury was off but continues in uptrends across all timeframes. 

            Shiller on the bond rally (medium):

            GLD was also down, remaining within a very short term uptrend, a short term trading range and an intermediate term downtrend.

Bottom line: today is the fifth trading day of January.  Barring a Titan III shot to 17978, the first five days of January will be down.  That means that the Santa Claus rally and the two day and five day indicators will imply a negative year for the S&P.  However, we still have the month of January indicator before we take full measure of the January effect. In addition, both of the indices remain below their 50 day moving averages.  Further, stocks were getting oversold, so some rebound was not surprising.  The good news is that the Averages remain firmly within uptrends across all timeframes; and that is more meaningful than the January effect.  

            The latest from Stock Trader’s Almanac (short):

            Yesterday’s US economic stats were mostly upbeat: the December ADP private payroll report showed good job growth and the US November trade deficit was smaller than expected.  The bad news was weekly mortgage and purchase applications fell, although Obama announced a reduction in FHA (home) mortgage insurance rates.  Still the ADP number was by far the most important; so we should be pleased.

            ***last night, a voting member of the Fed commented that raising rates now would be catastrophic (and ‘sugar plums danced in their heads’).

Overseas, the numbers continue discouraging: the December Eurozone CPI fell 0.2% (indicative of weak to no growth); November Italian and EU unemployment rose while German unemployment declined slightly.

            ***overnight, November German factory orders were reported down 2.4%.

            The factors that held the headlines yesterday and generally provided the positive fundamental rationale for a Market rebound were:

(1)   the positive ADP employment report,

(2)   Germany announced that it was open to negotiations over Greek debt, easing fears that some cataclysmic [series of] event could be triggered by a Greek default/withdrawal from the EU (medium):

                 Not that there aren’t EU related risks to the US economy (medium):

(3)   more fluff from the Fed in the release of its December meeting’s minutes.  Fluff equaling patience [lack of courage] regarding the timing of interest rate increases [see below].

Another factor of note is that decline in oil prices claimed its first casualty (medium):

Bottom line: the tragedy in Paris notwithstanding, investors got some relief on factors that were concerning them (Greece, oil) plus another boost from the Fed suggesting that any further monetary tightening just isn’t in the cards unless certain ill-defined circumstances occur in the forthcoming ill-defined time period.  ‘Money for nothing’ remains an enduring theme for investors however ill advised.

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 securities based lending (short):

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