The Morning Call
The Market
Technical
And
on the fourth day, they rested. The
indices (DJIA 13986, S&P 1512) only managed to inch a tad higher
yesterday. Once again the Dow closed
above the upper boundary of its short term uptrend (13289-13929); while the
S&P finished below its comparable level (1444-1514). Both remain within their intermediate term
uptrends (13289-18289, 1406-2001).
Volume
declined slightly; breadth was mixed.
The VIX was off but continues to trade well within its intermediate term
downtrend.
GLD
rose, closing above the lower boundary of its very short term uptrend but below
the upper boundary of its short term downtrend.
It is developing a pennant pattern formed by these two boundaries---a
break of one of them should point to future price direction. It continues to trade within its intermediate
term trading range.
Bottom
line: while the last seven trading days have been fairly volatile, most of the
pin action has just been churning in place---the net effect of which has been
to work off an overbought condition. Two
things that I am watching: (1) the tight trading range of the last seven days
[S&P 1495-1514]. A break out in
either way could point at future direction and (2) the upper boundaries of the
Averages short term uptrend. I have
noted that this resistance level has been something of a magnet of late.
All that said,
both trends are up and the bulls are in control until proven otherwise. Hence, I am still looking for the indices to
attain the 14140/1576 level; and our Portfolios will continue to lighten up as
prices move higher.
Fundamental
Headlines
Very
little news yesterday. Weekly mortgage
and purchase applications rose.
Yawn.
There were also
some not so pretty headlines out of Europe , though
investors seem to have returned to their former state of complacency.
In the EU, financial conditions are
getting worse (medium):
And
Italian rates continue to rise as the Monte del Paschi scandal deepens
(medium):
John
Mauldin on Greece
Other
than that, the Market is increasingly the focus of the media as bulls and bears
are duking it out in publications, over the Internet and on television. To date, the bulls are clearly winning the
battle. And they may very well win the
war. If so, I will be dead wrong.
A
great article focusing on equity performance during periods of rising rates
(medium and today’s must read):
Update
of Fed’s financial stress index (short):
Insider
selling now aggressively bearish (medium):
Another
sentiment indicator (short):
Bottom
line: if I am wrong about the Market,
then I am going to be wrong about one or more of the key assumptions in our
Models:
(1) an economy
growing at a below average pace. If the
data change, so will I. But today, there
is no hint of a return to historical growth rates,
(2) easy money
that ultimately leads to higher inflation.
The Fed just reiterated its ‘balls to the wall’ money printing
strategy. We may not see inflation start
to move higher tomorrow; but unless the laws of economics cease to operate, at
some point in time, the Fed will have to drain massive reserves from the
banking system without doing it either too fast [recession] or too slow
[inflation]---a task, I have often
pointed out, that they have never, ever done,
(3)
Europe ‘muddles through’. That may occur; but the tail risk if it doesn’t
is not currently knowable and has a sufficient probability of happening to
warrant caution,
From Citi on EU
financial condition. A bit long but
today’s must read:
(4) the ruling
class is unable or unwilling to put the budget on a path to fiscal
responsibility. This too could occur;
but to date both the political class’s words and actions belie that
happening. Until something changes, I
simply can’t bet money on the hope that in the end they will do the right
thing. I would rather incur the
opportunity cost of making them prove it, than the real cost of losing money if
they don’t.
Something
to consider if you own auto stocks (medium):
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