The Morning Call
4/21/16
The
Market
Technical
The indices
(DJIA 18096, S&P 2102) were up again, though they did suffer an intraday
reversal. Volume improved, but it is
still weak. Breadth was stronger. The VIX was up. Mirroring the indices, it was down intraday,
pushing through the lower boundary of its short term trading range then
recovering above it by day’s end.
Depending on follow through our Aggressive Growth Portfolio is poised to
Add to its VXX holding.
The Dow closed
[a] above its 100 day moving average, now support, [b] above its 200 day moving
average, now support, [c] in a short term uptrend {17440-18395}, [c] in an
intermediate term trading range {15842-18295} and [d] in a long term uptrend
{5471-19343}.
The S&P
finished [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] above
the upper boundary of its short term trading range for the third day, resetting
to an uptrend {2068-2170}, [d] in an intermediate term trading range
{1867-2134} and [e] in a long term uptrend {830-2218}.
The long
Treasury fell 1% on volume, breaking below the lower boundary of its very short
term uptrend and a key Fibonacci level.
That is a bit concerning on a near term basis; although it remained
within a short term uptrend and above its 100 day moving average.
GLD was off
fractionally, voiding a very short term downtrend (remember it did so last
week, but failed to hold), above its 100 day moving average and a key Fibonacci
support level.
And:
Bottom line: the
Averages struggled to remain in plus territory yesterday; but that pretty much
fits with my technical outlook: (1) stocks are at a level of heavy congestion
and so going is likely to get a bit tougher, (2) but the technical strength is
sufficient to maintain the assumption that the Averages will challenge their
all-time highs.
I
am paying closer attention to the long Treasury which broke some minor support
levels. However, it is much too soon to
cause worry.
Fundamental
Headlines
We
finally got an upbeat stat yesterday: March existing home sales were better
than forecast; and while weekly mortgage applications were up, the more
important purchase applications were down.
The dataflow this week is still negative, though today there are a
number of releases that could change that.
Overseas, March
Japanese exports fell for a sixth disappointing month in a row. As I noted yesterday that has implications
for the upcoming Bank of Japan meeting (higher likelihood of further monetary
easing) and raises questions about just how strong the Chinese economy is.
Soros
warns China looks like US in 2008 (medium and a must read):
***overnight,
the German government reduced its 2017 GDP growth estimate, March UK retail
sales fell more than anticipated, the Bank of Sweden stepped up its bond buying
program and the ECB left rates unchanged but increased its asset purchase program.
Bottom line:
neither the economic stats here and abroad nor this earnings season to date aren’t
exactly reasons to get bulled up.
Nonetheless, investors are.
Why? Likely more easing from the
BOJ next week, more mewing from our own Fed, oil keeps going up, the Doha bust
notwithstanding, the promise of better earnings later in the year and the
belief that China isn’t in as bad economic shape as assumed a month ago (see
above).
I can’t argue
with any of those reasons, except maybe China and better earnings reports going
forward. But even if I believed every
one, my issue is what you pay for all that.
I will go one better, even if I revised our economic forecast to a
reflect 1-2% growth, even if the Fed somehow miraculously escapes the monetary
trap it has created for itself, even if Japan, the EU and China muddle through,
valuations are still too high (as calculated by our Model).
Yet the Averages
are a short hair off their all-time highs; 70% of the S&P stocks are above their
200 day moving averages. That is a sign
of a lot of optimism. Yes, our Model
could be wrong; but it has worked for thirty years and until it is proven that ‘this
time is different’---I will stay with our discipline. Again, I am not saying run for the
hills. I am saying that prices are at
levels that warrant taking some profits.
The primary
reason that I developed the aforementioned discipline was to gain control over
my Sell decisions. I talked yesterday
about the importance of knowing why you own a stock. Implicit in that is knowing the reason to
sell. If you bought a pharmaceutical company
because it was working on a new break though drug, then implicit in that is
that you take profits when the drug is announced. If you buy Ford because consumer incomes and
spending are expected to grow, then implicit in that is when it is widely
recognized that the economy/consumer is regaining health, you take profits.
For me, our discipline
is to buy a stock at historical low relative and absolute valuations. Implicit in that is that we take profits when
the stock is near its relative and absolute high valuation.
The point here
is not that I have the be all and end all of buy and sell disciplines. The point is that you should have those
disciplines no matter what the criteria.
You should be able to look at every holding in your portfolio and state
the reason you own it in 25 words or less.
That was yesterday’s message.
Today’s is that you should be able to look at every stock in your
portfolio state the reason to take profits in that stock in 25 words or less.
The latest from
Doug Kass (medium and a must read):
Submitted
as evidence to the above (medium):
One
of my favorite Street analysts capitulates (medium):
Here
is all the reasons to be positive (medium):
News on Stocks in Our Portfolios
Revenue of $3.27B
(-2.1% Y/Y) beats by $20M
Forward yield 0.46%
Revenue of $5.54B
(-20% Y/Y) beats by $200M.
Revenue of $2.57B
(+4.9% Y/Y) beats by $90M
Economics
This Week’s Data
March
existing home sales rose 5.1% versus expectations of up 3.7%.
Weekly
jobless claims fell 6,000 versus estimates of a 12,000 increase.
The
April Philadelphia Fed manufacturing index came in at -1.6 versus forecasts of
+9.0.
The
March Chicago Fed National Activity Index was reported at -.44 versus the prior
reading of -.38.
Other
Politics
Domestic
Fed’s blow off
subpoena for Obamacare documents (medium):
This can’t be
good: Central States pension fund set to cut retirement benefits (medium and a
must read):
Thursday morning
humor (if only):
International War Against Radical
Islam
EU
invades Libya (medium):
More on the Saudi links to 9/11
(medium):
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