Friday, January 30, 2015

The Morning Call---Yellen crawfishes again

The Morning Call


The Market

The indices (DJIA 17416, S&P 2021) snapped back sharply yesterday, remaining within uptrends across all timeframes: short term (16493-19269, 1914-2895), intermediate term (16507-21662, 1742-2456) and long term (5369-18860, 783-2083).  The Dow recovered nicely back above its mid-December support low (17288).

            Volume fell; breadth improved.  The VIX dropped 8%, finishing within a short term trading range, an intermediate term downtrend and above its 50 day moving average. 

            What the Dow Transports are telling us (short):

            The long Treasury declined, closing for the second day back above the lower boundary of that very short term uptrend which it broke Tuesday.  I am waiting another day before re-setting that trend call.  TLT remained above the upper boundaries of its short and intermediate term uptrends and its 50 day moving average.  The bond guys continue to tell us that deflation or some negative geopolitical event are in the offing.

            GLD really got whacked, ending below the lower boundary of its very short term uptrend; a close there today will confirm the break.  It remains above the upper boundary its short term uptrend, within an intermediate term trading range and above its 50 day moving average.  Clearly, GLD’s consolidation has turned a lot more volatile than TLT’s, which is not all that surprising.  Its volatility is the reason our Portfolios initial position was small---allowing the room to average down, which our Portfolios will do, assuming GLD holds the 50 day moving average and the short term uptrend.

Bottom line:  yesterday’s bounce in prices is not unexpected given the shellacking stocks took in the prior two days.  It was clearly a positive that the Dow rebounded off its mid-December low.  The question will be how it and the S&P handle resistance.

At this point, GLD’s chart remains solid enough that my thoughts are to Add to this holding, assuming it doesn’t self-destruct as it did late last year.

            The latest from Stock Traders’ Almanac (short):


            Two economic stats were released yesterday: weekly jobless claims were much lower than anticipated while pending home sales were discouraging.  This mixed performance fits with the week’s marginally upbeat data flow and our forecast.

            It was a generally positive day for earnings announcements from market leaders of major industries.  That helps to change the trend from down to erratic---which relatively is a plus.  But it doesn’t dispel my concern that it is a sign that global economic weakness is starting to impact our economy.

            Another plus on the day was an apparent re-thinking of the narrative on Wednesday’s FOMC message from ‘the Fed is worried about international concerns’ (read recession) to ‘the Fed assures us that it will be patient (read no rate increases in sight) in spite of its upgraded analysis of the economy’.  Of course, this flip flop was helped along by some dovish comments by Yellen to congressional leaders.  (Ever notice how the Fed always assuages the speculators when they ‘misinterpret’ Fed language?) 

Yesterday’s narrative was yet another chapter in the never ending effort to tip toe through the tulips.  And while it may have generated some positive vides in the pin action, it doesn’t alter the fact that the Fed is in an increasingly untenable position (justifying ‘money for nothing’ when the economy has repeated surpassed its employment objectives) and is undoubtedly scared as shit that a move to right the economy (raise interest rates) will destroy the Markets---juiced up as they are by speculators, hedge funds and carry traders using free money to create asset bubbles.

            David Stockman on the futility of QE (medium and today’s must read):

            The futility of EU QE (medium):

Across the pond, Germany reported December CPI down 0.5%---providing yet another piece of evidence of global economic weakness.

            ***overnight, Eurozone January CPI fell 0.6%.  Does this mean more EU QE?

            In addition, Russia joined the easy money parade, cutting key interest rates.

            In addition, the pissing contest between Greece and the EU ramped up another notch as (1) Greek leaders are questioning additional economic sanctions being planned for Russia and the (2) Russian finance minister volunteered that his country would be open to providing economic assistance to Greece---rumors of Russia’s demise may be true but they are not likely to go down without a fight.

Greece seeks financial aid from Russia (short):

            ***overnight, the EU ‘unanimously’ agreed to extend Russian sanctions but did add to them.  It apparently didn’t tell the Greeks that it was unanimous.

            An open letter from Syriza to the Germans (medium and an absolute must read):

Bottom line: yesterday’s rebound notwithstanding, (1) the Fed confessing that it is worried about the global economy in the face of massive central bank easing remains the principal takeaway from the FOMC statement, (2) the recent ‘less bad’ trend in the earnings of US corporate giants doesn’t change the fact that 2015 profit estimates are now at zero growth and (3) the apparent conviction that the Greek government will get muscled into another trade off that keeps it in the Eurozone and avoids haircuts for the EU banks doesn’t mean that it will be so. 

Of course, none of the above means that the QE fever is dead or dying or that investors won’t choose to remain oblivious to the growing economic risks.  However, I am not smart enough to play this current game of stock market roulette.

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.



      Thoughts on Investing from Jeremy Grantham

Eight lessons from investing.

1) Inside advice, legal in those days, from friends in the company is a LEARNED: particularly dangerous basis for decisions; you know little how limited their knowledge really is and you are overexposed to sustained enthusiasm;
2) Always diversify, particularly for your pension fund;
3) Fraud, near-fraud, or colossal incompetence can always strike;
4) Don’t buy stocks yourself if you’re an amateur: invest with a relatively rare expert or in a low-cost index;
5) Investing when young will start your brain turning on things financial;
6) Painful errors teach you more than success does;
7) Luck helps; and finally,
8) Have a convenient mother to be the fall guy.
      News on Stocks in Our Portfolios
·         AbbVie (NYSE:ABBV): Q4 EPS of $0.89 beats by $0.03.
·         Revenue of $5.45B (+6.7% Y/Y) beats by $90M.

Altria (NYSE:MO): Q4 EPS of $0.66 misses by $0.01.
·         C.R. Bard (NYSE:BCR) Q4 results ($M): Net Sales: 867.2 (+9.6%); Vascular: 244.6 (+19.5%); Urology: 217.8 (+7.6%); Oncology: 237.5 (+7.8%); Surgical Specialties: 145.0 (+3.1%); Other: 22.3 (-3.9%).
·         Net Income: 134.2 (-79.9%); EPS: 1.72 (-79.2%); Non-GAAP EPS: 2.29 (+40.5%).


   This Week’s Data

            December pending home sales fell 3.7% versus expectations of a 0.9% increase.

                Revised fourth quarter GDP came in up 2.6% (annualized rate) versus estimates of up 3.2% and the initial report of 5.0%.





            A pessimist’s outlook on Greece (medium):

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