The Morning Call
The Market
Technical
The
S&P (1545) finished below its former all time high (1576) as well as the
upper boundary of its short term uptrend (1502-1576).
Both
of the Averages closed remain within their intermediate term uptrends
(13543-18543, 1436-2030) and their long term uptrends (4783-17500, 688-1750).
Volume
declined; breadth deteriorated significantly.
The VIX spiked to the upside but continued to trade with its short and
intermediate term downtrends.
GLD
moved up, finishing again at roughly the mid point of its short term downtrend. A short term support level as well as a very
short term uptrend continue to develop.
Bottom line: the
indices got a bit more in sync yesterday as the Dow retreated back within its
short term trading range. However, it is
still well above its previous all time high, leaving it at odds with the
S&P. While this partial resolution
of nonconfirmation was to the negative, I wouldn’t put too much emphasis on
that at this moment. After all, both of
the Averages are still in uptrends in every time cycle.
I am not backing
off of my position that stocks are overvalued.
I am just saying that from a technical standpoint, one can’t suggest a
top has been made until those uptrends start getting challenged.
Finally, it is
important to note that there is still no confirmation of a breakout to the
upside.
Where
stocks are in various cycles (short):
Sentiment
update:
Fundamental
Headlines
Yesterday’s
economic data were positive: existing home sales were up though slightly less
than anticipated, the Philly Fed index was stronger than expected and February
leading economic indicators came in ahead of forecast. The US
continues to plug along despite global issues---which keeps our outlook in
tact.
Internationally,
developments weren’t quite as cheery, though the Chinese PMI
was healthier than estimates. On the
other hand, EU flash PMIs were terrible; and more importantly, the ECB basically
issued an ultimatum to Cyprus ---come
up with a plan by Monday or else.
Here
is a look at the PMI stats (short):
And
here is an analysis of the ECB ultimatum:
ECB
pushes Cyprus
over the brink (medium):
More
on the causes of Cyprus ’
problems (medium):
Later
in the day, Cypriot officials came up with a Plan C, which involved taking the
most broke bank, breaking it into a ‘good’ bank and a ‘bad’ bank, then raising funds
via bond sales with assets as collateral and nationalizing the state pension
system---which the ECB has now also rejected.
Bottom
line: the Cyprus situation remains in too great a state of flux to be making
assumptions about how it is going to play out;
and to be clear, it doesn’t even matter what happens to Cyprus because
it is too small to have an impact on the EU much less the global economy.
However, what is
important is how the crisis is resolved.
Any solution (such as the original ECB proposal) that: (1) damages the
credibility of the eurocrats to manage the EU sovereign/bank debt crisis (2)
impairs depositor confidence in their home country banks, (3) triggers
counterparty risk on Cyprus debt or (4) creates potential political conflict
between Russia and the EU would likely have ramifications beyond simply an
extremely small island nation going toes up.
I am not
suggesting any of the above will occur.
Indeed, if they don’t, then I will have to re-evaluate my tail risk assumptions
regarding the eurocrats’ ability to hold the EU together and keep it
functioning long term as a viable economic entity.
But until we
know, I am on the sidelines.
Thoughts
on why ‘muddling through’ seems to be working despite mounting problems
(medium):
More
on valuation (short):
And:
Will
profit margins really hold up (short):
The
latest from Gary Shilling (medium):
Subscriber Alert
The
stock price of Cato (CATO) traded below the lower boundary of its Buy
Value Range
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