Tuesday, January 13, 2015

The Morning Call---The 'unmitigated positive' storyline is starting to fade

The Morning Call


The Market

The indices (DJIA 17640, S&P 2028) were slammed again yesterday, closing below their 50 day moving averages but within uptrends across all timeframes: short term (16387-19157, 1889-2251), intermediate term (16401-21570, 1729-2443) and long term (5369-18860, 783-2083).  Both remain within the pennant formations that I described yesterday.  However, they are sitting right on the lower boundaries of these patterns.  A move below would be a short term technical negative.

            Volume was flat; breadth was negative.  The VIX jumped, finishing above its 50 day moving average and within its short term trading range and intermediate term downtrend. 
            The long Treasury continues its phenomenal performance, ending up for the day within uptrends across all timeframes and above its 50 day moving average.

            GLD was also up, closing within its very short term uptrend, its short term trading range and right on the upper boundary of its intermediate term downtrend.  A confirmed break of this boundary would likely mean that a bottom has been made.

Bottom line: both of the Averages closed back below their 50 day moving averages and right on the lower boundaries of developing pennant formations---neither all that positive, technically speaking.  Also important, given Friday’s and yesterday’s sound retreats, is whether last Thursday’s moon shot that eked out a positive outcome to the first five trading days of January indicator as a false flag.  If so, then the technical situation would have three turn of the year indicators (Santa Claus rally, first two trading days, first five trading days) all negative.  If it is not, then we need to see some sort of reasonable rebound and quickly.  As I noted in the Closing Bell, the continuing schizophrenic pin action leaves me directionally clueless. 

            Andrew Thrasher’s weekly technical update (medium):

            No US economic indicators were released yesterday, though we got lots of news from abroad and it was mostly dismal.  Fitch cut Russia’s credit rating, Japan announced a record FY 2015 fiscal year deficit and a Chinese real estate developer failed to make a scheduled interest payment.  The one ‘bright spot’ was an ECB statement that it is ‘planning to design’ a sovereign debt purchase program based on paid in capital ‘contributions’ made by big EU central banks---my emphasis on ‘bright spot’ because it had to make the QE crowd  fell all warm and fuzzy.  Color me doubtful.

            Adding to the sour note from overseas: (1) oil was down big, again [continuing to lose its ‘unmitigated positive’ moniker], (2) Goldman Sachs lowered its 2015 economic outlook for the US [oops] and (3) the first day of earnings season marked big disappointments in Tiffany’s [I thought the 1% were spending freely], SanDisk [I thought technology was recession proof] and American Airlines [another stake through the heart of the ‘lower oil is an “unmitigated positive”’ crowd].

            Uh oh, now Goldman and BofA are crawfishing on ‘unmitigated positive’ (medium and a must read):

            Uh oh, analysts are cutting earnings estimates (short):

            Bottom line: in short, it was not a good news day and keeps the risks to our forecast on which I frequently dwell, front and center.  Of particular concern is the Market’s earnings expectations.  If the Tiffany, SanDisk, American Airlines trifecta is a sign of things to come this earnings season, investors could be in for some discomfort.  Of course, one day does not a trend make; so it is far too early to be poor mouthing this season’s results.

      Investing for Survival

            The risk/return relationship has been upended (medium):

      ETF Highlights

The YieldShares High Income ETF (YYY) provides investors with yet another way to maximize yield, namely a fund-of-closed-end-funds. YYY holds about 30 closed-end funds, selected and weighted based on three criteria: yield, YYY has seen a slow but steady increase in AUM and liquidity discount to NAV, and trading volume. The concept hinges on the success of buying discounted closed end funds with big yields and enough liquidity to minimize trading costs within the basket. YYY can hold closed-end funds focused on any of the major asset classes, capping the weight at a maximum of 4.5% each at rebalance. The fund competes directly with PCEF and a 2x version of its own index, CEFL. YYY’s headline fee includes the expense of its constituent funds, but investors aren’t fazed by it judging from the slow but steady increase in AUM and liquidity. A footnote: YYY launched in June 2013 by grafting itself onto a moribund ETF—SNDS—that had a completely different strategy, so any performance history prior to that date is unrelated.  The fund’s expense ratio is 1.66% and its yield is 9.21%.  I would like to own this in the ETF Portfolio but so far have delayed any purchase due to its deteriorating technical picture.

      News on Stocks in Our Portfolios

   This Week’s Data


            Europe’s slow motion descent into deflation (short):

            The bubble in central bank credibility (medium):

            Update on big four economic indicators (medium):



  International War Against Radical Islam

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