The Morning Call
The Market
Technical
The
indices (DJIA 14567, S&P 1562) drifted higher yesterday, closing within all
major uptrends: short term (14114-14798, 1548-1622), intermediate term
(13769-18769, 146-2050), and long term (4783-17500, 688-1750). However, they remain out of sync on their all
time highs, the Dow having broken above its high (14190), the S&P not
(1576).
In
addition, both of the Averages are in the process of potentially developing a
right shoulder of a head and shoulders formation. To complete this pattern would involve
trading a bit higher than rolling over and trading below the ‘neckline’ (14377,
1540) of formation. Of course, the
indices could well spike higher, negating the pattern; but from a technical
standpoint, it is important to be watching this development.
Volume
declined (continuing the pattern of high volume on down days and lighter volume
on up days); breadth was mixed. The VIX
fell, finishing within its short and intermediate term downtrends.
GLD
rose again, but remains well below the lower boundaries of its short term
downtrend and intermediate term trading range.
This week the lower boundary of the short term downtrend will have to be
moved and the intermediate term trend switched to a downtrend. It continues the bounce off the lower
boundary of its long term uptrend.
Bottom line: in my opinion, the strength of the current
bounce in the Averages is the critical technical factor to watch. If it is weak and prices roll over, then a
head and shoulders pattern will have been traced. That would be a negative for stocks---though
given the length of the short term uptrend, it may take a couple of tries to
break the S&P head and shoulders ‘neckline’. If this Market is rolling over, our cash
position is going to look awfully good.
If the indices
mount another push up, then S&P 1576 becomes the most important level to
watch. If equities regain upward momentum, our Portfolios will be better
Sellers.
Fundamental
Headlines
Yesterday’s
economic news was not that great: the Chicago National Activity Index declined
versus an anticipated advance, March existing home sales were down versus
expectations of an increase. However,
below the headline figure home sales appeared much better. While this keeps the data flow tilted to the
negative side, we still need more data before getting ‘beared up’.
This
data along with a couple of disappointing earnings reports (cough, Caterpillar)
put pressure on equity prices early on but rallied later in the day---for what
reason, I don’t know (continuing rebound off of oversold levels, relief that
the Boston bombings are now a closed case, anticipating positive earning
reports).
Bottom line: stocks
are overvalued as estimated by our Valuation Model. The economic data has turned more
mixed---certainly not an argument for higher stock prices. The rest of the investment landscape (fiscal
and monetary policy, Europe and China )
is unchanged for the moment. The amber
light is flashing though it will take a good deal more poor data to turn it
red. I love our cash position.
***Chinese,
German and EU composite manufacturing PMI
came in below expectations.
For
the bulls amongst you (medium):
The
latest from John Hussman (medium):
What
are bonds telling us (medium):
The
latest from David Rosenberg (short):
More
on this earnings season (short):
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