The Morning Call
The Market
Technical
The
indices (DJIA 12965, S&P 1409) traded lower yesterday. They closed (1) below their 50 day moving
averages [13175/1418], (2) within their new short term trading ranges whose
lower boundaries are 12460/1343 and whose upper boundaries [initial candidates]
are 13302/1424 and (3) within their intermediate term uptrends [12865-17865,
1359-1954].
The pin action
incorporated an ‘outside’ down day, that is it traded above the high of the
prior trading day then closed below the low of the prior trading day---a
technical pattern that is considered negative.
Volume
declined; breadth weakened. The VIX
rose, finishing above its 50 day moving average (not good) but well within the
zone between the upper boundary of its short term downtrend and the lower
boundary of its intermediate term trading range.
GLD
was up but still closed below its 50 day moving average but above the lower
boundaries of its short term uptrend and its intermediate term trading range.
Bottom
line: the inability of the Averages to penetrate their 50 day moving averages
on an ‘outside’ down day is not an encouraging sign, technically speaking. If there is
any follow through to yesterday’s down move, it would set the 13302/1424
level as the upper boundaries of Averages new short term trading ranges. With the lower boundaries are 12460/1343, the
risk reward within this new range is not great from current prices. To be sure, the risk/reward is great when
measured off their intermediate term uptrends; however, with the preponderance
of those trend zones well above Fair Value, I am paying more attention to those
short term trading ranges.
Equity
performance in December (short):
Fundamental
Headlines
Yesterday’s
economic news was generally good: US November PMI ,
October construction spending, monthly auto sales plus China PMI . Unfortunately, there was one bad number---the
November ISM manufacturing index declined---and this was the stat that
investors chose to focus on. Hence, the
day got off to a bad start. However, in
total this data basically reflects our forecast; so I see little about which to
be upset.
We
also got some positive movement on the fiscal cliff, i.e. the republicans
responded to Obama’s first offer by suggesting a far smaller tax increase and
some cuts in entitlement spending.
Forgetting for the moment the gap between the bid and offer here, the
important thing is how the dems respond; that is, if there is some give from
the original Obama proposal, that would be a plus; if not, then, it could get
rough going into Christmas. ***last night the White House rejected this
proposal out of hand. Oh, no
Bottom
line: Obama’s response to the GOP offer
notwithstanding, I continue to believe that we are going to get a resolution to
the fiscal cliff. However, that is not
to say that I think the likelihood of a grand bargain has improved. Our political class is demonstrating their
sincere (that’s a joke) effort to avoid the cliff. They will work and work, posture and posture
and at the last minute agree to some deal that will be sure to get a one inch
headline in the WSJ while nailing our knees to the floor. And life will go on
with ever increasing spending, taxes, regulation and money supply.
Since that
scenario is in our Models, a price decline to below Fair Value would prompt
purchases of those stocks on our Buy Lists.
Unfortunately, no progress is being made to resolve the financial
problems in Greece Spain
Charts on market
valuation from Doug Short:
http://advisorperspectives.com/dshort/commentaries/Market-Valuation-Inflation-and-10-Year-Yields.php
The latest from
Pimco(all the below are must reads):
Bill Gross on
the US
Mohamed El Erian
on Europe :
Meanwhile over at
the Fed (short):
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