Thursday, April 21, 2016

The Morning Call--Headed for the all-time highs

The Morning Call


The Market

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.  


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.       



            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
Illinois Tool Works (NYSE:ITW): Q1 EPS of $1.29 beats by $0.03.
Revenue of $3.27B (-2.1% Y/Y) beats by $20M

C. R. Bard (NYSE:BCR) declares $0.24/share quarterly dividend in line with previous.
Forward yield 0.46%

Qualcomm (NASDAQ:QCOM): FQ2 EPS of $1.04 beats by $0.08.
Revenue of $5.54B (-20% Y/Y) beats by $200M.

Sherwin Williams (NYSE:SHW): Q1 EPS of $1.81 beats by $0.19.
Revenue of $2.57B (+4.9% Y/Y) beats by $90M


   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.




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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