The Morning Call
The Market
Technical
The
indices (DJIA 12932, S&P 1394) celebrated Obama’s victory and a solution to
the current Greek sovereign debt problem by executing a waterfall
formation. A number of technical factors
to note: (1) the S&P clearly couldn’t hold 1422, (2) both of the Averages penetrated the lower boundary
of their respective short term trading ranges [12973-13661, 1395-1474] (3) the
Dow broke its 200 day moving average [12991] though the S&P remained above
its respective indicator [1381] (4) both remained above the lower boundaries of
their intermediate term uptrends [12706-17706, 1340-1936].
Conclusions:
(1) the 13302/1422 resistance level clearly demonstrated some strength, (2) the
lower boundaries of the short term trading ranges are now being seriously
challenged. Our time and distance
discipline is now operative; a break will be confirmed either by both of
Averages remaining below 12973/1395 through next Monday or the decline falling
a further 1-2% whichever comes first, (3) the DJIA and the S&P are now out
of sync on their 200 day moving averages; they need to return to harmony before
any conviction about Market direction relative to this support level can
develop.
Volume
rose; breadth deteriorated. The VIX
surged 8% leaving it above its 200 day moving average, the lower boundary of
its very short term uptrend and the lower boundary of its intermediate term
trading range. It remained below the
upper boundary of its short term downtrend but it is approaching it. This indicator is now neutral/negative. In addition, Apple stock, a Market leader
until very recently, continues a vicious decline---not a positive sign.
GLD
rose, finishing above the upper boundary of a very short term downtrend for the
second day. Under our time and distance
discipline that is sufficient time for a very short term trend to be confirmed
as broken. However, it failed to
penetrate the interim resistance level (167.3); so I am still reticent to get
too jiggy about a turnaround until the resistance level gets taken out. GLD remained well above the lower boundaries
of its short term uptrend and its intermediate term trading range.
Bottom
line: stocks went from challenging a
resistance level (13302/1422) to busting through a primary support level
(12973/1395). Of course, follow through
is necessary; so it is too soon to predict lower prices. On the other hand, significant technical
damage has been done; hence if the 12973/1395 level eventually holds, it will
indicate a fair amount of technical strength.
At yesterday’s
close, the S&P is trading right at Year End Fair Value. That doesn’t argue for lower prices; but if
12973/1395 gives way, there is no reason to believe that prices couldn’t go
down another 5-7% without getting wildly undervalued.
Margin
calls could become a problem (short):
Update
on the Shanghai Composite (short):
Fundamental
Headlines
Our
only economic indicator yesterday was another secondary one---weekly mortgage
and purchase applications. In addition,
as a very short term datapoint, it reflected the impact of Sandy
Of
course, the big US GDP
growth of 2-4%---so failure to address this issue would be problematic.
The
concern is that given that nothing has really changed in the Washington
Whether Obama
decides to remain an ideologue or to start building his legacy as a leader will
likely be the key factor in the outcome; and like Boehner, His acceptance
speech Tuesday night offered hope for compromise. We would all love that to happen; and I am open to accepting that as a possible
scenario. Indeed, the whole rather
dismal economic forecast that I laid out in yesterday’s Morning Call is a
‘grand bargain’ (tax reform and spending cuts) away from starting the US
Unfortunately,
we are more likely to get some bastardized version that is a cross between
falling off the cliff and the ‘grand bargain’ and we may not get it until the
very last minute. That suggests two
things: if our political class repeats its historic behavior pattern (1) it
will scare the living s**t out of taxpayers/investors before any deal is done,
and (2) it will be such lame ass excuse for a solution [more spending just not
as much, tax increases just not as much] that the economy is will still likely
experience some of the negative effects of the fiscal cliff anyway, to wit, a
slowdown in an already paltry rate of economic growth.
Even more
regrettable, there remains a decent probability that our elected
representatives will hold their ideological ground and run the US
Meanwhile,
across the pond, the masses are growing restless---riots in Athens Spain Europe are
even worse. If the eurocrats don’t get
their act together and soon, we will be kissing our hopefully strengthening
economy farewell.
Bottom line: unfortunately,
the election didn’t help us much. Yeah
we now know the identity of the new president and congress. But nothing changed; meaning the White House
still holds a left wing ideologue and Washington is still in gridlock---which
does nothing to relieve the uncertainty on the fiscal cliff nor does it relieve
anxiety over rising taxes, rising regulation and imprudent monetary/fiscal
policies. And if that wasn’t enough, the
eurocrats seem bound and determined to turn the southern half of their
continent into a giant clusterf**k.
While some of
this is reflected in our Models, the worse case (fiscal cliff and the fall of Spain
What
is driving equity valuation (medium and a must read):
More
(short):
Thoughts
from an optimist (short/medium):
More
thoughts on the viability of dividend paying stocks (short):
News
Alert: the Bank of England questions the viability of QE (medium):
The latest from Marc
Faber (10 minute video):
The latest from
Charles Biderman (6 minute video):
The latest from
David Rosenberg (medium):
Investing for Survival
What
yesterday means (medium and today’s must read):
http://www.nationalreview.com/articles/332626/what-2012-election-means-mackubin-thomas-owens
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