The Morning Call
The Market
Technical
Yesterday
was tough. However, the indices (DJIA
14599, S&P 1552) still closed within all major uptrends: short term
(14030-14725, 1537-1611), intermediate term (13723-18723, 1454-2048) and long
term (4783-17500, 688-1750).
The
S&P fell below its former all time high (1576). Under our time and distance discipline that
negates last Wednesday’s break above that barrier. So if there is another break to the upside,
the clock on the time element of our discipline will re-start at zero.
Volume
was up; breadth was terrible. The VIX
spiked 43% but remained within both its short term and intermediate term
downtrends.
GLD
(131.4) got hammered. It penetrated the
lower boundaries of both its (1) short term downtrend and (2) intermediate term
trading range. Under our time and
distance discipline, the break of the (1) short term downtrend will be
confirmed at the close Wednesday and (2) intermediate term trading range at the
close Friday.
And:
And:
And:
Bottom line: yesterday’s carnage notwithstanding, stocks
remain in an uptrend. That said, the
inability of the S&P to hold above its prior all time high very much keeps
alive the question of whether stocks are in a topping process or building a
base to launch another leg up.
Certainly, Monday’s pin action didn’t help Market internals.
On the other
hand, the breakdown of an uptrend is precisely that; and there hasn’t been
one. I remain cautious and quite happy
to be 40% in cash.
Fundamental
Headlines
Yesterday’s
economic news was not positive. In the US ,
the April New York Fed manufacturing index came in much below estimates. Meanwhile, overseas Chinese first quarter
economic numbers were also disappointing.
The combo got the Market headed down at the open and it was a downhill slide
for the rest of the day.
I
am not so much concerned with the NY Fed index reading, (1) because it is a
secondary indicator and (2) because there is no real trend to the negative in
the US
stats. The China
numbers are a bit more disturbing, (1) because they are quarterly readings [i.e.
they encompass a long period of time and (2) because I have been assuming that China
would be a positive factor in sustaining the US
recovery. At this early date, I am not
going to give up on that notion; but the amber light is now flashing.
As
I am sure you know, the big news item of the day was the bombing of the Boston
Marathon. While I don’t discount the
element of personal tragedy, I am not sure how negative an impact this will
have on Markets beyond yesterday.
Bottom
line: stocks are overvalued as measured by our Model. Under conditions of overvaluation, one never
knows the catalyst that will drive prices back to Fair Value. Yesterday offered two potential excuses---the
weakness in the Chinese economy and the attack in Boston . On the other hand, they may not be---so I
wouldn’t be making major strategic adjustments to my portfolio based on those
events and the Market’s performance. The
point here is that it is way too soon to be drawing any conclusions.
I
remain quite happy with our cash position.
More
on valuation (medium):
The
latest from John Hussman (medium):
The
dilemma of the EU citizens: resignation or revolution (medium):
And
the banks (medium):
And
Portugal
(medium):
Investing for Survival
Tax
freedom day around the world (short):
Five
FDIC alternatives (short):
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