The Morning Call
The Market
Technical
The
indices (DJIA 13248, S&P 1428) had a good day:
(1)
finishing above their 50 day moving averages for the
third day. Under our time and distance
discipline that confirms the break above this resistance point. It also suggests upward buoyancy to the
Market,
(2)
the S&P broke above the upper boundary of its short
term trading range [1424]; however, the Dow did not [13302]. Our time and distance discipline starts for
the S&P; however, as you know, that discipline requires the DJIA to break
its comparable resistance level for the break to be confirmed. If that occurs, the Averages would re-set to
a short term uptrend with additional resistance at the September/October highs
[13682/1474],
(3)
closing within their intermediate term uptrends
[12922-17922, 1364-1959].
Volume increased
slightly; breadth improved with the flow of funds indicator particularly
strong. The VIX fell but continues to
trade between the upper boundary of its short term downtrend and the lower
boundary of its intermediate term trading range.
GLD declined but
remains above the lower boundaries of its short term uptrend and the
intermediate term trading range.
Bottom line:
yesterday was a strong day technically speaking with both of the Averages
confirming the break over their 50 day moving averages and the S&P starting
a challenge of the upper boundary of its short tem trading range. The implications are clearly positive;
however, before getting too jiggy, I need our time and distance discipline to
confirm the break out above their short term trading ranges. If that happens then given that the indices
are above Fair Value, my focus on our Sell Discipline will increase.
Transports
near a breakout (short):
Fundamental
Headlines
Lots
of economic data yesterday; unfortunately, not much of it was good: small
business confidence fell, weekly retail sales were weak, our trade rose but
slightly less than expected and wholesale inventories jumped while sales
declined. This is the kind of day that
we have come to expect as the economy struggles to grow in the face of a
burdensome government. The good news
that (at least thus far) these days don’t turn into trends and get followed
sooner or later by strong data days.
The
fiscal cliff was again center stage as investors seem to become more positive
that there will be a settlement. Harry
Reid rained on the parade mid-day when he said that there was little progress;
but that was offset by an announcement out of Boehner’s office that Obama has
lowered His demands for tax increases to $1.4 trillion from $1.6 trillion. Progress to be sure; but still nothing on
spending cuts.
The
rise in animal spirits was also helped by a lot of happy talk regarding the
announcement of QEIV in the FOMC release today.
So clearly the notion of increasingly easy monetary policy continues to
make investors feel all warm and fuzzy.
As an aside, the stocks have been up the day before an FOMC statement in
five of the last six meetings.
If
the above weren’t enough, Germany Europe sinking into deep recession.
Bottom
line: investors tip toed through the
tulips yesterday; though it seemed to me that they heavily edited reality. For one, I don’t see the point in getting
jiggy over not going over the fiscal cliff.
In my opinion, the odds are heavily weighted to a compromise; and at
least as calculated by our Valuation Model, it is already in the price of
stocks. The only thing that could change
that assessment is if we get a grand bargain---which would be cause for
joy. But I think the probabilities of it
happening are slim.
Second, in these
notes I have spent pages and linked to enumerable articles outlining the
destructive consequences of the Fed’s massive easing of money supply and setting
of interest rates at artificially low levels.
Further, anyone who looks at the charts and plots stock performance
after each QE announcement knows that the Market rise after each was
progressively less and less and when the lift was over, stocks sold off. Indeed,
the Market peaked the day after the Fed announced QEIII and sold off for two
months. So I am stumped why they are
bidding up prices this time.
Finally, if
there is some follow through (improving data) to the German ZEW report, then this
may be a sign that the worst is over.
That said, it is a single datapoint not a trend and it is for one
country not the EU. Elsewhere in Europe ,
the news wasn’t quite as positive.
Results of the
Greek debt buyback (short):
More
evidence of the dangers of easy money and inadequate risk control systems; this
time in Austria
In sum, nothing
has happened that would cause me to re-think the assumptions in our Models. So the further stocks rise, the more
overvalued they become (at least as calculated by our Model). A grand bargain and/or a serious attempt at
solving the eurocrisis could change that; but for now it ain’t happenin’.
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