The Morning Call
The Market
Technical
The
indices (DJIA 13412, S&P 1462) were at maximum thrust yesterday. If both can hold present levels for two more
days, then the short term trend will again be reset to an uptrend. In addition, this latest action appears to be
forming the right shoulder of a reverse head and shoulders formation. If it develops further, that would be an
added positive for stocks. Meanwhile,
they remain above the lower boundaries of their intermediate term uptrends (13056-18056,
1380-1975).
Volume
was huge; breadth was good although the flow of funds indicator was not
impressive. The VIX fell 18%, finishing
back below the upper boundary of its former short term downtrend, below the
lower boundary of a very short term uptrend and above the lower boundary of its
intermediate term trading range. This is
very positive for stocks.
GLD
was up but remains within a short term downtrend. It continues to trade above the lower
boundary of its intermediate term trading range.
Bottom
line: the Averages appear to be again re-setting to a short term uptrend. If they are able to hold current levels, this
re-set will be confirmed on the close Friday.
Fundamental
Headlines
Yesterday’s
economic news was mixed to positive: weekly retail sales and the ISM
manufacturing index were both good while November construction spending was
disappointing. All fit well in our
economic forecast.
Of
course, the so called resolution of the fiscal cliff was the only topic of
discussion. To be sure, holding the Bush
tax rates for a majority of taxpayers is a positive. With that concession out of the way, with
virtually no attempt to address government spending, in total, the compromise
reached did nothing to improve the outlook for the economy, i.e. remember our
forecast assumed no fiscal cliff, but also assumes that our political class
will not have the courage to deal effectively with the budget deficit. To be clear, I have no doubt that some ‘fix’
will ultimately be enacted but it will contain all the usual phony accounting
and spending cuts in the out years when few of these thieves will be around to
enact the enabling legislation.
And:
And for those of you who
think this latest action by our political class is any kind of sign that they
have the slightest understanding of what fiscal responsibility means:
Bottom
line: with respect to the assumptions in our Models, nothing has changed. That means that stocks (as represented by the
S&P) are overvalued (as defined by our Valuation Model).
Several
stocks are right on technically important resistance levels. Our Portfolios will be lightening up on these
positions as prices continue to advance---if they continue to advance.
Bill
Gross on Fed policy (medium and today’s absolutely must read):
Subscriber Alert
At
the Market open this morning, our Portfolios will take the following action:
In
the High Yield Portfolio: Leggett & Platt.
This stock is now trading in its Sell
Half Range
In
the Dividend Growth and Aggressive Growth Portfolios: the positions in Schwab
and Medtronic are being reduced (near important technical levels). The holding of Lowe’s is being
eliminated. Like LEG
above, in our most recent fundamental review, the company failed to meet the
minimum quality standards needed for inclusion in the Dividend Growth and
Aggressive Growth Universes.
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
International Council of Shopping Centers reported weekly sales of major retailers
up 0.6% versus the prior week and up 2.7% versus the comparable period last
year; Redbook Research reported month to date retail chain store sales up 2.9%
on a year over year basis.
The
December Institute for Supply Management’s manufacturing index came in at 50.7
versus expectations of 50.5.
November
construction spending fell 0.3% versus estimates of a 0.6% rise.
Other
Politics
Domestic
An editorial in
the New York Times. Read it and weep:
International War Against Radical Islam
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