The Market
Technical
The
indices (DJIA 13424, S&P 1440) had a great day. Both recovered above the lower boundaries of their short term
uptrends (13385-14216, 1437-1529) and closed above their 50 day moving averages
(13317, 1429). This negates the prior
breaks and leaves these support levels in tact.
They remain well above the lower boundaries of their intermediate term
uptrends (12537-17537, 1322-1920).
Volume
was just so so; breadth improved. The
VIX fell but continue to trade between the upper boundary of its short term
downtrend and the lower boundary of its intermediate term trading range. It also broke below its 50 day moving
average---and if holds that would be a positive for stocks.
GLD
got whacked and closed right on its interim support level (168.4) but remains
well above the lower boundaries of its short term uptrend and its intermediate
term trading range.
Bottom line: the
Averages bounced yesterday (1) off multiple support levels (the lower
boundaries of their short term uptrends and 50 day moving averages), (2) from a
still oversold position and (3) halting a long string of down Monday’s. This
move negates the prior breaks and leaves all trends in tact. However, follow through is the key to whether
this move was simply the completion of an oversold bounce or if the indices are
going to mount another challenge to the recent highs (13653/1469). the challenge to the lower boundary of the
Dow’s short term uptrend continues while the S&P remains poised to mount
its assault on its comparable boundary.
The Market’s
internal structure continues to weaken (see below). I believe still that we will see lower prices
near term and accordingly I remain focused on our Sell Discipline.
Further
weakness in GLD will start our time and distance discipline but with a shorten
‘time’ element.
More
words of caution (short):
And
(medium):
Short
interest at a five month low (medium):
Stock
performance during option expiration week (short):
Fundamental
Headlines
Lots
of good news yesterday that served to push prices higher:
(1)
good economic news: September retail sales were quite
strong---and this a lot to strengthen our case for no recession. Business inventories were up---which is
good; but sales were up less. Finally, the NY Fed manufacturing index was
weak---however, the retail sales number was much more important than this
secondary indicator. All in all, I am
very happy with these stats.
(2)
Citigroup reported better than expected earnings. As you know investors are watching for a
recovery in the financials a sign of economic recovery; so I understand the
enthusiasm. However, the accounting was
so complex, investors should be careful about what they believe.
Here is one of my favorites, Jeff Macke’s view on Citigroup (5 minute
video):
(3)
rumors out of Europe were that Greece Spain
Although gosh
only knows, Greece
Bottom
line: the better September retail sales
continues to strengthen my resolve that our economic forecast is right on;
however, it is important to note that I don’t believe a sign that growth will
be anything better than sluggish. That
in turn reinforces our Valuation Model’s Fair Value measure---which means that
at current levels are modestly overvalued.
Hence, I am not
inspired to chase equities to higher prices.
I remain concerned principally about the blow up in the eurozone and
given the magnitude of the risk should it happen, I see little reason to put
cash to work until prices correct below Fair Value.
The
latest from John Hussman (medium):
The
latest from David Rosenberg (medium):
Investing for Survival
Some
history:
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