The Morning Call
The Market
Technical
The
indices (DJIA 13034, S&P 1409) managed to close slightly higher on a
volatile day with massive internal divergences (some stocks up big [Traveler];
some stocks down big [Apple]), but remained within (1) their short term trading
ranges [12460-13302, 1343-1422] and (2) their intermediate term uptrends
[12880-17880, 1361-1956].
Volume
rose; breadth improved further. The VIX
fell, closing right on its 50 day moving average (a move lower would be a plus
for stocks) and remains in the ever narrowing zone between the upper boundary
of its short term downtrend and the lower boundary of its intermediate term
trading range.
GLD
was off fractionally, finishing below its 50 day moving average but above the
lower boundaries of its short term uptrend and its intermediate term trading
range. GLD continues its sickly
performance. As you know, our Portfolios
Sold their trading positions in GLD in what proved to be a lousy trade; a move
below the lower boundary of its short term uptrend (circa 161) will likely
prompt some lightening in their investment positions.
Bottom
line: the S&P has been locked in a pretty tight range (1395-1422) for the
last two weeks during which it could not make a higher high from early November---not
a sign of strength. My guess is that
whatever the direction it is moving when it busts out of this trading range
will likely follow though for the short term.
In any case, with
the S&P in the upper half of its short term trading range, there is nothing
technically compelling about putting cash to work.
Fundamental
Headlines
Yesterday’s
economic data were upbeat: the ADP private
payroll number was up, though less than expected; third quarter nonfarm
productivity was better than estimates; October factory orders were much better
than anticipated; and the November ISM nonmanufacturing index came in positive
and above forecasts. In sum, these stats
support of current outlook.
However,
the Market most of the day focused on the fiscal cliff. The first headline was talk of some republicans breaking
ranks and be willing to accept tax rate hikes.
That got stocks moving to the upside.
The surprising thing is that anyone would think that this is news. It is clear to me that republicans are going
to have to fold on the tax rate issue; it is the only way that they are going
to get any spending cuts at all.
Boehner
more or less emphasized that point when it was later reported that he was
threatening those GOP members who were unwilling to go along with his fiscal
cliff proposals with their House committee assignments (read status). So it appears to me that Boehner knows the
republicans have to give some on the point of tax rates and he starting to
knock heads to get it done.
As you know,
this outcome (higher tax rates) is not one that I want. But Obama and dems are completely outclassing
the GOP on the propaganda front; and I think Boehner sees the hand writing on
the wall. So unless republicans get a
whole lot better at making their case, their choices, it seems to me, is to
either get what they can get in the budget negotiations, proclaim a ‘just’
compromise and lick their wounds or push the economy over the cliff, take the
blame for the subsequent recession and get clocked in 2014. My bet is that a major of the GOP
officeholders will conclude that discretion is the better part of valor and
fold.
I may not like
the resulting agreement which will undoubtedly include some unattractive
combination of higher taxes and few real spending cuts; but that is the outcome
I have figured into our Economic Model---so it will be no surprise. The good news is that stocks are presently
Fairly Valued on that assumption.
P.S.
after the Market close, in an interview on CNBC ,
Geithner stated unequivocally that the administration is prepared to go over
the cliff, if doesn’t get tax rate increases.
That may have an impact on early trading this morning. My take is that this is just part of the Kabuki
dance going on in DC and does little to alter my opinion of the ultimate
outcome.
P.P.S.
overnight in Europe, third quarter eurozone GDP
was down, Greek unemployment was up, German factory orders were up, the ECB
left interest rates unchanged and S&P downgraded Greek debt to ‘selective
default’.
Bottom line:
there is clearly more to come on the fiscal cliff as well as the EU
sovereign/bank debt crisis. For the
moment the fiscal cliff is the focus of investor attention; however as you
know, I think that:
(1) it will
ultimately have less to do with our economic outlook than the EU problem
because the likely non-optimal solution is already priced into our Model,
(2) though on a
short term basis, it could still roil the Markets. Because if history repeats itself, our
political class will only come to an agreement at the last possible
minute---which will scare the be-jesus out of investors. Indeed, it may take a Market panic to force
that last minute compromise.
The good news is
that a panic could provide a buying opportunity if it pushes prices
sufficiently low to also incorporate the real risk to our forecast, i.e. a
debacle in Europe .
The latest from
David Rosenberg (medium):
Subscriber Alert
The
stock price of CR Bard (BCR -$97) traded
below the upper boundary of its Buy Value
Range BCR ,
so no action will be taken.
No comments:
Post a Comment