The Market
Technical
The
indices (DJIA 13245, S&P 1428) had a good day, closing within their (1)
short term trading ranges [12973-13661, 1395-1474] and (2) intermediate term
uptrends [12697-17697, 1340-1936]. The
S&P finished above its 1422 resistance, turned support, now resistance;
though the DJIA remains below its comparable level (13302). Further, they closed below their 50 day
moving averages (13340/1434) and above their 200 day moving averages
(12991/1380).
Back
to the S&P’s penetration of the 1422 resistance level: (1) our time and
distance discipline is now operative, (2) but with a secondary resistance
level, the time element is only two days, (3) in addition, the DJIA has not
confirmed the break, (4) all that said, even if the Dow does confirm it,
nothing changes with respect to the primary trends.
Volume
was up but was still anemic; breadth improved.
The VIX fell but much less than I would have expected on such a strong
up day. It remains below the upper
boundary of its short term downtrend but above the lower boundaries of a very
short term uptrend and the intermediate term trading range. This indicator is still neutral.
GLD
(166.3) soared, finishing above the upper boundary of a newly developed very
short term downtrend. If this rally
continues above an interim resistance level (167.3), our Portfolios will likely
start adding back to their GLD trading positions. GLD remains above the lower boundaries of its
short term uptrend and its intermediate term trading range.
Bottom
line: frankly, I was surprised by
yesterday’s burst of investor enthusiasm even if it was on low volume. As always, the key is follow through. While this positive pin action took the
Averages out of the proximity of the lower boundaries of their short term
trading ranges, our Model’s Year End Fair Values, as you know, are lower than
those lower boundaries. So there is
little technical incentive for our Portfolios to Buy stocks.
Market
performance in post election years (short):
Percentage
of stocks above their 50 day moving average (short):
Great
article assessing the post election Market (medium and a must read):
Fundamental
Headlines
Yesterday’s
only economic indicator to be released was weekly retail sales; and those
numbers are the first to be impacted by Sandy
The
news from overseas was almost universally bad: weak economic data out of Spain Japan Germany
More
on the deteriorating conditions in Spain
None
of this explains why the Market got jiggy on us. Not surprisingly, the media interviewed a
constant stream of pundits, each one explaining that the sharply higher prices
were a result of investors anticipating either an Obama or Romney
victory---depending on the speaker’s political bias.
Clearly, all
that noise was worthless. So I don’t
have an explanation for the positive performance. Indeed, as I have opined previously, I can’t
see a good political reason for an up Market from current levels.
And now that we
know the results, I am even more baffled.
Trying to be as objective as I can about where we go from here, I think
what we now know is:
(1)
economically, nothing changes. That is this country will continue down the
path of irresponsible spending paid for partially by higher taxes, partially by
more printed money.
In the first
instance, it means that our current forecast stays the same, with the caveat
[that is now much bigger than it was yesterday] that the risk of the fiscal
cliff is now higher.
Longer term,
it means the US France
(2)
politically---and at the risk of sounding overly
dramatic---it means that a founding principal of this country, to wit, that the
job of the government is to insure liberty not a livelihood, is going if not
gone. There now appears to be a majority
of voters that [a] expect goodies from the government rather than to be left
alone and [b] don’t mind being told what to do and how to live their
lives. That represents a profound change in psyche of this nation
and will lead to the Europeanization of this country. You may agree with it, I don’t.
As important,
it will likely lead to a decline in the relative power of the US
Bottom
line: stocks, as defined by the S&P,
are overvalued, as defined by our Model.
That has not changed either.
Importantly, with the election out of the way, the world will now start
to turn again. Europe
has a sovereign and bank debt problem to solve.
The fiscal cliff is now front and center. In my mind, this suggests lower equity
prices.
So my focus is
now firmly on our Sell Discipline as well as the technical performance of GLD.
Whoever
wins, the Market is in for a rough ride (medium):
And
more along those lines (medium/long):
Visualizing
tail risk (short):
For
any bond investors---the latest on what Jeffery Gundlach is doing (medium):
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