The Morning Call
The Market
Technical
Another
day, another new Dow high. It (14447)
remains above the former all time high (14190) and the upper boundary of its
short term uptrend (13636-14306).
However, the S&P (1555) has still not challenged either its all time
high (1576) or the upper boundary of its short term uptrend (1486-1558). As long as the Averages are out of sync,
under our time and distance discipline, there is no confirmation of a Market
break out.
Both
indices remain within their intermediate term uptrends (13481-18481, 1427-2021)
and are not that far from the upper boundaries of their long term (80 years)
uptrends (4783-17500, 688-1750).
Volume
fell; breadth deteriorated, though the flow of funds indicator continues strong. The VIX (11.56) declined, remaining within
both its short term and intermediate term downtrends. However, it is approaching its all time low
(9.75).
GLD
rose but remains near the lower boundary of its short term downtrend. That said, it appears to be attempting to
form a base---but it is too early to make that call.
And
(short):
Bottom line: the
Averages remain out of sync though I think it likely that the S&P will at
least trade up to the 1576 all time high.
As you know, my bet is that the S&P won’t succeed in breaking above
that level and that stocks are in a topping process.
Of course, I
have been wrong about the current advance thus far; so I don’t have a lot of
confidence in the aforementioned bet. On
the other hand, I feel a lot more comfortable betting that the Averages will
not trade above the upper boundaries of their long term uptrends. That means the max upside in S&P is
around 10% while the downside (the lower boundary of that long term uptrend) is
significantly larger.
So, however
wrong I may have been raising cash too soon, I am not going to compound it by
chasing stocks up from here---although as I noted last Friday, I may make a
small trade in the Aggressive Growth Portfolio as an experiment if the S&P
breaks above 1576.
Fundamental
Headlines
No
US economic
data yesterday; and the only international stats of importance were more weak
numbers out of China . I noted in last week’s Closing Bell that the
trend of disappointing data was becoming worrisome---since China
seems to be one of few of our major trading partners that is growing. This is a factor that we have to keep a close
eye on.
We
got lots of headlines on the budget process, though they were mostly political
in nature. Obama continued His charm
offensive. The Senate democrats
announced that they would produce a budget---the first in four years; but most
observers are of the opinion that it will include plenty of tax hikes. In other words, a nonstarter.
Paul
Ryan is going to release his budget proposal today. Again the DC tom toms are reporting that will
be abolish Obamacare. In other words, a
nonstarter.
Hence,
despite the more recent cordial atmosphere, there is clearly a probability that
this is all theatrics and everyone is girding themselves in anticipation that
the 2014 elections will be focused on breaking the philosophical stalemate over
fiscal policy. If that is the case, then
the economy is going to get no help from the ruling class.
Bottom line: ‘the economy is on track with our
outlook---based on which stocks are overvalued.
As I noted yesterday, technically speaking the S&P could rise to
circa 1750 and still be within its long term uptrend. But (1) most of our stocks are ahead of that
index, so their potential upside is likely less, (2) further, the downside
represented by Fair Value to say nothing of the lower boundary of the S&P
long term uptrend present a not all that attractive risk/reward equation, (3)
plus, the tail risks resulting from out
of control Fed money printing and an unraveling of the eurozone are unknowable
because we have never been here before and hence lend weight to the risk side.’
I
like our cash position.
The
latest from John Hussman (medium):
The
latest from Lance Roberts (medium and today’s must read):
Comparing
QE2 and QE3 (short/medium):
And
for those nonbelievers who poo poo the powerfully positive economic trends
underlying the market’s move to all time highs: Americans’ on food stamps hit
an all time high (short):
And
this (short/medium):
Investing for Survival
New
tax law in Puerto Rico offers lower rates (medium):
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