The Morning Call
The Market
Technical
Santa
Claus is coming to town. The indices
(DJIA 13350, S&P 1446) had another great day. The S&P closed above the upper boundary
of its short term trading range (12460-13302) for the second day. In addition,
it is on the cusp of confirming the break on the distance element of our time
and distance discipline. For the break
of the short term trading range to be confirmed, the S&P must close above
the upper boundary today.
The Dow also
finished above its comparable boundary (12460-13302) for the first day, putting
the Averages back in sync. The DJIA must
finish above its upper boundary two more days.
If successful, then both indices will re-set to short term uptrends with
interim resistance at 13682/1474.
Volume
was up big; breadth was strong. The VIX
fell, closing below its 50 day moving
average and between the upper boundary of its short term downtrend and the
lower boundary of its intermediate term trading range.
Stocks
in overbought territory (short):
GLD
got whacked hard, closing below the lower boundary of its short term
uptrend. If this break is confirmed (two
more days), our Portfolios will lighten up on its investment position.
Bottom line:
investors are clearly feeling their Wheaties.
With the Dow above the upper boundary of its short term trading range
and the S&P scheduled to confirm the break its comparable boundary at the
close today, the Santa Claus rally appears in full swing.
That said, as I
noted yesterday, if the current upswing continues, our Portfolios will likely
chip away at several stocks that are at critical technical levels.
Insiders
are selling (short):
Note
on the Santa Claus rally (short):
Fundamental
Headlines
Yesterday
news flow was a duplicate of Monday’s:
(1)
we got one secondary stat: weekly retail sales were
good---but that is not going to alter anyone’s forecast,
(2)
the rest of the day, the fiscal cliff negotiations were
center stage. Boehner presented what he is terming Plan B, i.e. renew the Bush
tax cuts for those earning less than $1 million with no demands for spending
cuts. Those would be dealt with in the upcoming debt ceiling debate.
Pelosi, Reid and
Obama all said ‘no way Melvin’ to this Plan; although that might not stop the
republicans from presenting the legislation.
The GOP has apparently set Thursday as a drop dead date for a compromise
on Plan A. If they get none, then the
House votes on Plan B and it is up to Obama to sign it or not. Either way this is likely to heighten the
animosity in DC; and God only knows what happens when the debt ceiling talks
commence in 2013.
In the
meantime, we received some details of Obama’s proposed spending cuts which as
you might expect employed the usual Washington
We haven’t heard much out
of Europe lately.
As a reminder of how great things are, yesterday the ECB began again
accepting Greek bonds as collateral (remember their current rating connotes
serious risk of bankruptcy).
And Berlusconi says Italy
Meanwhile in Japan
Kyle Bass on Japan
Bottom line:
while yesterday’s fiscal cliff talks don’t appear to offer much progress, at
least both sides are still talking.
Plus, investors appear positively giddy over it. However, if Boehner is retreating to the Plan
B mentioned above, it seems clear when, as and if a compromise can be reached
in 2013 it will an infinity more painful process than the current skirmish and
will likely not better than our expectations: a half baked agreement that will
do little to nothing to offset the headwinds of an irresponsible fiscal
policy. That means continued sluggish
below average economic growth which at today’s prices is more than adequately
valued.
To be clear, I
can get Fair Values above current levels but that would assume responsible
fiscal policy (a grand bargain) as well as a sane monetary policy (turning off
the printing presses).
Even if Europe
were suddenly less of a risk, that wouldn’t move the Valuation needle a
centimeter. That said, it would alter
the need for a cash position as high as our Portfolios are now carrying and
would lead to them Adding to those stocks on our Buy Lists. But in no case would they be chasing stock
prices higher.
Central
banks risk market crash (medium):
On
the same theme, a detailed analysis of the dilemma the Fed is creating for
itself (medium and today’s must read):
And
last but not least from Rob Arnott (short):
The
latest from Jeff Gundlach (medium and also a must read):
http://www.zerohedge.com/news/2012-12-18/jeff-gundlach-fiscal-cliff-circus-and-why-investors-should-hold-cash-through-2013
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