The Morning Call
The Market
Technical
The
Dow (14450) continued its winning way yesterday, closing again above its
previous all time high (14190), the upper boundary of its short term uptrend
(13644-14316) and remains within its intermediate term uptrend (13481-18481)
and its long term uptrend (4783-17500).
However,
for the first time in eight trading days, the S&P (1552) was off--- though
not by much. Hence, it continues to be
out of sync with the DJIA, being below both its previous all time high (1576)
and the upper boundary of its short term uptrend (1488-1560). That means that under our time and distance
discipline, it is still open to question as to whether the Market (as defined
by the two Averages) is breaking to the upside.
That said, our internal indicator which has acted as a leading indicator
in the past is certainly pointing to higher prices. Bottom line: it looks to me like the S&P
will likely challenge 1576 though I remain doubtful that it will confirm a
break up.
Moreover,
even if does go higher, the question in my mind is how much higher? As you know, I believe that the upper
boundaries of the indices long term uptrends (4783-17500, 688-1750) will prove
to be formidable both technically and fundamentally (given the degree of
overvaluation relative to Fair Value).
Volume
inched up but remained rather anemic; breadth was poor except for the flow of
funds and on balance volume which continue to do well. The VIX rose, finishing within its short term
and intermediate term downtrends.
GLD
rose but is still well within its short term downtrend. Nonetheless, a short term bottom seems to be
forming.
Bottom line: the
old Wall Street adage is ‘buy low and sell high’. If touching all time highs isn’t an
invitation to ‘sell high’, I not sure what is.
That is not to say that ‘the high’ can’t be over the current price. It is to say that with the economy growing at
a historically low secular rate burdened by a debt level that the Rogoff and
Reinhart study concludes suppresses higher growth and a Fed that has inflated
the money supply to level far beyond previous occasions---all of which ended
badly---it is a Herculean leap of faith to assume that there can be much if any
improvement in (1) corporate profits margins, which are at a record level but
unfortunately are also historically mean reverting or (2) P/E ratios which are
already high in an artificially created zero interest rates environment.
I continue to
believe it would be a mistake to chase 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.
The
Dow and Bollinger Bands (short):
Sell
signal triggered at B of A (short):
Fundamental
Yesterday’s
economic data was positive though of not much significance: weekly retail sales
experienced another advance and small business sentiment improved
slightly. Don’t get me wrong, this was
better than a sharp stick in the eye---just not enough to warrant excitement
one way or the other.
Overseas
the news flow was down right terrible including a poor UK industrial production
number as well as another potential bank scandal, bankruptcies galore in Italy
and utility rates skyrocketing in Japan (so how is that ‘all in’ easy money
policy working Mr. Abe?).
British
regulators estimate losses on UK bank balance sheets could reach $90 billion
(medium):
And this from Italy
(medium):
And for the trifecta,
this from Japan
(medium):
Not
to beat a dead horse; but here is Kyle Bass on Japan
(medium):
***overnight
the EU reported lousy industrial production numbers and a Bank of China
official worried out loud that inflation was disrupting economic stability,
specifically that easy money policies of other central banks was fueling
China’s real estate boom.
The
main headlines of the day were (1) Paul Ryan’s new budget which promises to be
in balance in ten years. Of course, it
also incorporates the repeal of Obamacare.
If that’s not a classic example of a turd in the punchbowl, I don’t what
is, (2) the senate presented its budget.
It included $1 trillion in additional spending---as if. That puts them ahead of Obama who says the He
will have His budget ready by mid April---a mere 90 days too late, and (3) the
senate also brought the continuing resolution to the floor. The ensuing negotiations should provide for
some entertainment over the next couple of weeks as well as provide a good
indication as to the chances of a fiscal compromise. Ah, the night is young and hope springs
eternal.
Paul
Ryan on his budget proposal (medium):
And:
Bottom line: ‘the economy is on track with our
outlook---based on which stocks are overvalued.
As I noted....., 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.
Stock
market booms as global economy sputters (medium):
Preface
from a new book by David Stockman (medium):
Another
study revealing the adverse impact of high frequency trading (medium):
Subscriber Alert
In
our recent review of TC Pipelines, it failed to meet the financial standards
needed to qualify it for the High Yield Universe. According, it is being Removed. In addition, at the Market open, the High
Yield Portfolio’s position will be Sold.
A portion of the funds will be used to bring Pioneer Southwest (PSE) to
a full position.
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