The Morning Call
The Market
Technical
The
indices (DJIA 13944, S&P 1509) inched lower yesterday. Both of the Averages finished below the upper
boundaries of their short term uptrends (13308-13949, 1447-1516) and within
their intermediate term uptrends (13308-18308, 1407-2002).
Volume
declined; breadth was poor. The VIX
rose, remaining within its intermediate term downtrend.
A
look at Market internals:
GLD
fell but closed within a developing pennant pattern formed by the lower
boundary of a very short term uptrend and the upper boundary of a short term
downtrend. It is well within an
intermediate term trading range.
Bottom line: the
Averages continued their churning action which means, depending on your
perspective, either an overbought condition is being worked off or there is a
loss of momentum. The Market will
ultimately tell us which. In the meantime,
for clues on how it will be resolved I am watching two things: (1) the tight
trading range of the last eight days [S&P 1495-1514]. A break out either way could point at future
direction and (2) the upper boundaries of the Averages short term uptrend. I have noted that these resistance levels have
been something of a magnet of late---a move away in either direction would
likely point to the Market’s future course.
Rhythm
in the S&P (short):
Fundamental
Headlines
Yesterday’s
US economic news was mixed: January retail sales were better than anticipated,
weekly jobless claims fell though not as much as expected and fourth quarter
nonfarm productivity and unit labor costs were disappointing. This kind of erratic performance fits our
forecast.
Obama kept the
heat up in the sequester battle, making another speech yesterday arguing that
the GOP will be responsible for any and all problems created by it. I have this uneasy feeling in my stomach that
the republicans are again being outmaneuvered.
Meanwhile,
across the pond, conditions are getting worse.
The ECB met yesterday and in the accompanying press conference, Draghi
was less than enthusiastic: inflation is declining (good luck with that Mario),
the ECB will remain accommodative (sound familiar?) and the economy is
weak. That, of course, was the mild,
optimistic take on what is now transpiring.
In addition, to the problems in Italy Spain France
The
French economy is going on the ‘troubled’ list (medium):
And
having leaders like the departing head of the UK Financial Services Authority is
not going to improve the long term outlook (medium):
Bottom line: March 1 is the effective date of the
sequester. If the GOP doesn’t hold firm
for whatever reason (excuse), i.e. lack of will, out foxed by Obama, etc, we
are stuck, at a minimum, with our long term forecast of a sluggish
economy---held back by too much spending, too much debt, too much
regulation---for another two years. That
is not positive for equity valuations; and given that stocks are already over
valued (by our Model), neither is it a plus for stock prices.
Events is Europe are re-kindling investor
awareness that Draghi et al have scarcely mitigated the myriad of sovereign and
bank debt problems. Those difficulties
will likely exacerbate economic growth at a minimum and could lead to the ‘fat
tail’ risks that I fear.
Hence, our
Portfolios remain better Sellers into any further stock price increases
More
valuation studies (medium):
New
head of Bank of Japan (medium):
SocGen
on the economic data and market divergences (short):
The
latest from Jeremy Grantham (medium):
QE,
fiscal policy and inflation (medium):
The
latest from David Rosenberg (medium):
Investing for Survival
The
death of the ownership society (medium):
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