The Morning Call
The Market
Technical
The
indices (DJIA 15082, S&P 1626) took a breather yesterday, but still
finished within all major uptrends (except the Dow is over the upper boundary
of its short term uptrend): short term (14345-15071, 1573-1647), intermediate
term (13894-18894, 1472-2061) and long term (4783-17500, 688-1750).
Volume
was pathetic; breadth declined.
The
VIX increased slightly. It remains
within its short and intermediate term downtrend. That is a positive for stocks. But the VIX is not that far from the lower
boundary of its long term trading range (10).
If it draws nearer to that level, traders might consider hedging their
Portfolios by purchasing the VIX.
GLD
fell, remaining near the lower boundary of its intermediate term
downtrend. It is well within its long
term uptrend. I continue to wait for a
correction and test of the prior low or the lower boundary of its long term
uptrend before taking any action.
Bottom line: there
was nothing abnormal or alarming about yesterday’s decline; (1) stocks are
overbought and (2) the indices are bumping up against the upper boundary of
their short term uptrend; so I would expect a loss of momentum at the very
least. So the trend remains firmly
up.
Meanwhile, (m)y strategy continues to be to take
advantage of what I consider unwarranted optimism by lightening up on positions
when the stock price trades into its Sell Half Range
The
most hated rally of all time (medium):
Fundamental
Headlines
Yesterday’s
US economic news had good news (weekly jobless claims and April retail sales)
and bad news (March wholesale sales).
Clearly the balance was to the positive and that helped tip the weekly
numbers to the plus side. I will take
upbeat news where I can get; but frankly there were so few stats this week,
there is nothing to offset the recent
weakness.
Overseas,
Chinese inflation numbers were mixed, Greek unemployment stats were grim; but
most important, the Bank of Korea joined the global money printing
marathon. You don’t need another rant
from me on the currency, trade and transition risks associated with the ever
growing central bank effort to pump money into the global financial
system---you have already heard them, probably more than you want. Needless to say, one more player will
ultimately make this story’s ending worse.
***over
night, the central banks of Vietnam
and Sri Lanka
followed Korea
(Japan )
lowering rates (easing money) while Thailand
is considering it..
Japanese
bond market in disarray. Is this the
beginning of the end? (medium):
Meanwhile
in euroland the Franco-German alliance is starting to fray (medium):
http://www.zerohedge.com/news/2013-05-10/weidmann-slams-french-savings-widening-franco-german-divide
Bottom
line: stocks (as measured by the
S&P) are overvalued (as measured by our Model). The higher they go, the more overvalued they
become. Given the current nonstop melt
up, it is only reasonable that I challenge our Model---which I do
regularly. But on virtually every other
valuation model I see, the conclusion is the same: the Case Shiller model, the
Q ratio, and the numerous studies that Chris Short updates for us on a regular
basis.
Most of those
studies that come to a different conclusion are based using the current low
interest rates as the bogey against which to value stocks. But interest rates are low for artificial reasons---the demand
created by global central banks buying every bond in sight. So if rates are artificially low (bond prices
high), then aren’t stock prices artificially high?
That is a
decision each of us has to make on our own.
You know mine.
The
latest from Jim Grant (short):
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