The Morning Call
The Market
Technical
The
DJIA (14455) made another new high yesterday, closing above the previous all
time high (14190) and the upper boundary of its short term uptrend
(13676-14335) and within its intermediate term uptrend (13485-18485) and its
long term uptrend (4783-17500).
Meanwhile,
the S&P (1554) remains below its previous all time high (1576) and the
upper boundary of its short term uptrend (1488-1560). This leaves it out of sync with the Dow and
therefore, it is not confirming the upside break of the DJIA. It finished within its intermediate term
uptrend (1427-2021) and its long term uptrend (688-1750).
Volume
was anemic; breadth improved. The VIX
fell, closing within its short and intermediate term downtrends.
GLD
declined remaining within its short term downtrend but holding above what
appears to be a developing support level.
Bottom line: I
remain skeptical that the S&P can break 1576, though our internal indicator
suggests that this level will likely be challenged. Nevertheless, the issue remains is this a
topping process or a pause before another leg up? The S&P’s performance at that 1576 level
will provide the answer. However, even
if there is a break to the upside, I don’t believe that a next leg will cover
much distance as the indices will be bumping up against the upper boundaries of
an 80 year uptrend.
As a result, our
Portfolios remain better sellers.
Post
massive bear market rallies (short):
Bullish
sentiment surges (short):
Fundamental
Headlines
Yesterday’s
economic news was highlighted by a robust February retail sales number which
was very supportive of our forecast---especially in light of concerns over the
impact of the ending of the tax holiday on January 1. January business inventories also increased
well beyond expectations; though business sales couldn’t quite keep up. On a more downbeat note, weekly mortgage and
purchase applications turned negative.
However, all in all, this data was a plus for our Model; and I think
that it provided an upward bias to investor sentiment.
On
the other hand, the international economic news was not nearly as
positive. European industrial production
was down, Italy
experienced a poor reception for its latest bond auction and a Chinese banking
official was making warning sounds about too much central bank ease. No one seems to care.
***over
night EU unemployment was up.
More
trouble for the EU in Germany
(medium):
Not
to mention Greece
where the latest bail out talks just broke down (medium):
And
here is another entertaining barrage from Nigel Farage on the doom of the EU (5
minute video):
On
the political front, the kumbayah moment among our political class extended for
at least another day. Obama met with
house republicans, following which Boehner said that they disagreed on
virtually everything but there was room to negotiate. If you are an optimist, I suppose this is the
best you could hope for. If you are a
cynic (moi?)....well, it did nothing to diminish your skepticism and leaves you
holding hands with the optimists and hoping.
Is
Obama’s charm offensive for real (medium):
Bottom line: the US
economy continues to be the bright spot in our outlook. At the moment, there is no hint of a
recession and that keeps growth in our forecast---although there is nothing to
suggest the economy’s return to historically higher rates, burdened as it is
with too much government debt, too much deficit spending, too much government
regulation and an out of control Fed policy that is screwing the middle class
and small businesses. When plugged into
our Valuation Model, the result is that equities are overvalued.
Even considering
the technical upside, the risk/reward equation is not attractive enough, except
on a very speculative, short term trading basis, to warrant chasing prices up
from here.
I
like our cash position.
Bernanke
needs to go (medium):
Why
continued easing is necessary to keep long rates down (medium and today’s must
read):
Why
inflation targeting doesn’t work (medium):
And
finally, a bit extreme but an answer to how the Fed exits QE infinity (medium):
Investing for Survival
Surviving
in a world where less is the norm (medium/long):
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