The Morning Call
The Market
Technical
After
another volatile day, the indices (DJIA 14618, S&P 1553) still closed
within all major uptrends: short term (14072-14761, 1538-1612), intermediate
term (13746-18746, 1455-2049) and long term (4783-17500, 688-1750). On the other hand, they remain out of sync
with respect to their all time highs---the Dow having broken above its high
(14190) and the S&P not (1576).
Under our time and distance discipline for a break out to new highs to
be confirmed, both of the major Averages have to do so.
Volume
rose (the pattern of the last three days has been down on elevated volume, up
on lighter volume, down on heavy volume---which is not a positive for stocks);
breadth was down big time. The VIX
surged 18%, but remains well within both its short and intermediate term
downtrends.
GLD
was up fractionally, closing again below the lower boundaries of both its short
term downtrend and its intermediate term trading range---which is quite
negative. The sole redeeming feature of
GLD’s otherwise abysmal performance is that it is holding above the lower
boundary of its long term uptrend.
Great
explanation of what may have driven gold prices down (medium):
Is
Soros shorting gold (medium):
Bottom line: even though the Market’s direction is clearly
up at present, the volatility of the last three days is likely to have a
negative impact on investor confidence.
Whether that translates into some mean reverting behavior in stocks
remains to be seen. But no matter what
does happen, trying to invest in this recent buzz saw environment makes little
sense.
If equities
regain upward momentum, our Portfolios will be better Sellers. If this Market is rolling over, our cash
position is going to look awfully good.
Update
on the Eiffel Tower
Fundamental
Yesterday’s
economic data was good: mortgage and purchase applications were up while the
latest Fed Beige Book report was a tad more upbeat than the last. Now both of these are secondary indicators;
but a positive read on the economy is still a positive read on the
economy. These two just generate a bit
less jigginess.
Of
course, there was no jigginess in Mudville.
What seemed to be driving investor concerns were fears over the global
economy: (1) German auto sales were poor [and that contributed to a big down
day in the European bourses which in turn infected our own Market], (2)
industrial commodities are performing atrociously and (3) mounting worries over
a slowdown in China. For the moment, our
economy continues to struggle along; but clearly a sick Europe
and a slowing China
will ultimately have their impact on forecasts.
That
said, our Economic Model already has a stagnant EU factored in; so no surprise
there. China
is a different story. I have assumed that
Chinese economic growth would at least partially offset problems in Europe ---enough
so to keep our own economy growing at its current sub par pace. If China
rolls over, then some adjustments will have to be made to our Model. However, as I noted in Tuesday’s Morning
Call, it is a bit too soon to do that though the amber light is flashing.
More
disturbing news out of China
(medium):
Bottom line: as
measured by our Valuation Model, stocks are overvalued even assuming the US
economy continues to grow and Europe muddles through. So any developing weakness in stock prices
could be nothing more than mean reversion with investors using Europe/China/the
Fed, etc as the excuse to sell off. Certainly,
I don’t see that anything fundamental has changed on the issues that have been
negative factors in our forecast. So as
always, if a change in Market direction is in the offing, it will be more a
function of perceptions than reality. Of
course, we don’t even have ‘developing weakness’ yet.
Nevertheless,
I remain quite happy with our cash position.
Nigel
Farage at his best, indicting the eurocrats (medium):
Egan
Jones lowers Germany ’s
credit rating (short):
EU
may be joining the easy money race (short):
Subscriber Alert
The
stock price of CF Industries (CF-$173) has traded into its Buy
Value Range
Investing for Survival
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