Friday, April 8, 2016

The Morning Call--OPEC keeps the scam going

The Morning Call


The Market

The indices (DJIA 17541, S&P 2041) gave back all of Wednesday’s gain yesterday, setting lower highs from the late December highs, which are also the upper boundaries of their short term trade ranges.   Volume declined and breadth weakened.  The VIX spiked 15% finishing above below the upper boundary of its very short term downtrend; if it remains there through the close today, that trend will be negated.  In addition, it remained below its 100 day moving average. 

The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] back below the upper boundary of its short term trading range {15431-17758}, negating Friday’s break, [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] within a short term trading range {1867-2081}, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {800-2161}. 

The long Treasury was up 1 ¼%, closing within a very short term uptrend, a short term uptrend, above its 100 day moving average and above a Fibonacci support level. 

GLD finally had a good day, ending within a short term uptrend, above its 100 day moving average and a key Fibonacci support level.   However, it remains in a very short term downtrend.

Bottom line:  investors’ euphoria over an easy Fed seems to have had a very short half-life.   I am not that concerned about big down day; I have already noted that the Averages are at a level of heavy congestion.  However, the facts that (1) they couldn’t successfully challenge their first real obstacle [the upper boundaries of the short term trading ranges] and (2) there has been a noticeable change in intraday trading, to wit, this week, early morning price weakness has not been bought as it has been throughout the rally off the February lows, should be worrisome to the bulls.  That said, it is too soon to alter my current, major technical takeaways; (1) stocks are at a level of heavy congestion and so it makes sense that some momentum would be lost and (2) my assumption is that the Averages will challenge their all-time highs.


            Yesterday’s US economic data was weighted to the downside: weekly jobless claims were less than expected but March retail chain store sales grew less than in February and consumer credit is spiking on higher student and auto loans.

            ***overnight, Fed to hold expedited meeting on Monday to review interest rates.

            While there was no international economic data, the ink was hardly try on comments from Kuwait and Russia that an oil production freeze could occur at the upcoming meeting in Doha when the Saudi’s (again) poured cold water on yet another investor wet dream.  Oil reacted accordingly and everybody (in OPEC) covered their shorts.

Bottom line:  it looks like this week will be another minus on the economic front both here and abroad, the easy money fantasy took a hit yesterday, earnings season is fast approaching and stocks remain in nosebleed valuation territory.  Over the last couple of days I have been trying to make the case for establishing a cash position but at the same time set buy prices for those stocks you want to own at lower levels. 

            Dancing on a live volcano (medium):

I wanted to focus today on diversification which is particularly critical when stock prices are at or near extremes.  The best way to know if you are properly diversified is to ask yourself the question, if (you fill in the name of a stock or an industry group) gets halved tomorrow as a result of an unexpected event, will it impact my financial health?  If that stock (industry group) is 50% of your portfolio, the answer is obvious.  It is probably also obvious at 30% or 20%. 

Yes, you may say, I own a large position in (you fill in the name) but I did my homework.  I reply that is what investors said that owned Sears and Fannie Mae.  My point being that no matter how much you think that you know, you don’t know everything.  Otherwise you would be on the beach in Bermuda and not wasting your time reading this. 

Once you accept that negative events can occur unexpectedly (especially in periods of overextended valuations) then the issue of position sizing becomes critical---which gets us back to the question I posed above.  How many different positions do you need to have so that a significant loss in any one of them doesn’t keep you up at night?  Markowitz showed that a portfolio of ten stocks diversified away the specific risk associated with any one holding.  That’s too aggressive for me; I am more comfortable with twenty to thirty positions. What is important though is not my risk profile but your’s.   Size your positions so that a single event doesn’t severely impact your life savings.

       Investing for Survival
            Smart things people do to maximize their tax refund.

    News on Stocks in Our Portfolios

   This Week’s Data

            Monthly retail chain store sales growth in March slowed from their pace in February.

            February consumer credit roared up $17.2 billion versus expectations of up $14.0 billion.  The January number was revised from up $10.5 billion to up $14.9 billion.  Student and auto loans accounted for the bulk of the increase.


            Truck orders plunge 37% (short):

            The world draws ever closer to helicopter money (medium):




            Panama Papers observations (short):

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