The Morning Call
The Market
Technical
The
indices (DJIA 14329, S&P 1544) rose again.
For the third day, the Dow closed above the upper boundary of its short
term uptrend (13612-14272) and the former all time high (14190). A finish above those levels today will
confirm the break.
That
said, the S&P again failed to surpass its comparables to those
aforementioned boundaries: (1) short term uptrend [1482-1553] and (2) its
former all time high [1576]. Clearly, it
is not affirming the break in the DJIA; and as I have noted, under out time and
distance discipline, the Market would not qualify as having broken out until
both major index do so.
Both
of the Averages remain in their intermediate term uptrends (13443-18443,
1426-2020).
Volume
was flat (again; and not that encouraging); breadth was mixed (again; and again
the flow of funds indicator was strong).
The VIX fell and finished within both its short term and intermediate
term downtrends.
And:
GLD
fell and continues to hug the lower boundary of its short term downtrend. It remains above the lower boundary of its
intermediate term trading range.
Bottom
line: the Averages remain in a somewhat conflicted state. Both are in confirmed uptrends. However, the Dow has broken to a new all time
high while the S&P has not. That
said, the pin action looks very much like stocks are in a period of
consolidation and will push higher at some point.
As I noted on
Tuesday, our internal indicator supports that notion; however, it doesn’t help
my level of anxiety. Since I developed
our indicator and our Valuation Model, the only other time that they have been
out of sync was in the 2000 dot com blow off.
As I have done this time, I held fast to the Valuation Model and was
rewarded by being too early in our sales by almost a year. Of course, in the end the Valuation Model
proved correct; but that didn’t make that year any easier.
I honestly never
thought that this circumstance would happen again; so I never set any rules for
dealing with it---though I did consider alternatives. The problem was there wasn’t any real time
experiences in which I could experiment with possible alternative
strategies. The principal course that I
considered was the simple one---which was to follow the internal indicator
until it rolls over. So for my own
edification this time around: if the S&P ultimately breaks above 1576, I
may buy a Market ETF in the Aggressive Growth Portfolio as a trade. It will be small trade, since this is an
experiment.
In the meantime
I retain my confidence in our Valuation Model, especially as it applies to
individual stocks. So as our holdings
trade into their Sell Half
Ranges
Friendly
Fridays (short):
Fundamental
Headlines
Overseas,
the news was not so good: French unemployment reached a 13 year high, German
factory orders were lower, the ECB described the EU economy as weak and it
along with the Bank of England and the Bank of Japan left interest rates
unchanged. Finally, China
warned the Japanese about dumping goods.
Most of the above was not unexpected; although the Chinese statement was
the first negative comment on the currency debasement race that I have
seen. If it were to act on its
admonition, that could cause some serious heartburn.
***over
night, small business lending in Italy declined, fourth quarter GDP
in Austria fell, Spanish industrial output decreased and German industrial
production dropped.
All that said, investor/media focus remains on
the Market itself with pundit after pundit opining about the question I raised
above (top or launching pad).
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.
Update
on the Q ratio (medium):
The
Dow versus household income (short):
Morgan
Stanley on equity valuation (short):
And:
In Europe
things just keep getting worse---but money does grow on trees (medium):
Cross
border money flows have fallen dramatically in the EU (short):
For
the bulls amongst you (medium):
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