The Morning Call
The Market
Technical
The
indices (DJIA 15324, S&P 1654) roller coaster price movement of the last
week continued yesterday as they moved back into the plus column, finishing
within all major uptrends: short term (14594-15311, 1600-1677 [ the Dow was
above its upper boundary]), intermediate term (14015-19015, 1487-2075) and long
term (4783-17500, 688-1750).
Volume
rose; breadth improved. The VIX
declined, remaining within both its short and intermediate term downtrends---but
also closed well above the base that has been developing since mid January.
GLD
rose. It continued to trade below the
lower boundary of its intermediate term downtrend but above what appears to be
a double bottom and the lower boundary of its long term uptrend. Most notable, it broke to the upside out of
the shortest term downtrend. If it holds
above this downtrend today, our Portfolios will start to nibble.
Bottom line: ‘stocks are in an uptrend and will be until
they are not. At the moment, there are
hints that the current rally could be coming to an end. But until it occurs, traders should stay
long---although our Portfolios will continue to take advantage of this price
move to lighten up on selected holdings.
There are two technical developments that I
am watching: (1) how stock behave at the 1675 level and (2) whether there is
any loss of strength in the ‘buy the dips’ strategy.’
Fundamental
Headlines
A
number of US economic indicators were released yesterday and about the best one
can say is that they were somewhat disappointing: revised first quarter GDP
came in slightly below expectations, corporate profits showed a marked slowing
in growth, weekly jobless claims rose and April pending home sales were well
below estimates. The one positive stat
was the first quarter GDP deflator. Clearly not a great day for data; but in
aggregate this week’s numbers so far have been basically flat.
Overseas,
the French unemployment rate rose again; but most notably, the Nikkei plunged
5%. However after the close, it was
announced that the Japanese government pension fund was looking into upping its
allocation to stocks which spiked a number of global markets including our own. Bond
markets everywhere stabilized a bit; still many of the fixed income indices and
ETF’s that I watch continued to decline.
Bottom line: stocks
(as measure by the S&P) are overvalued (as measure by our Valuation Model)
even if our economic forecast is underestimating GDP
growth, even if Europe muddles through and even if the global central banks
somehow extricate themselves from what appears to me to be a completely
untenable position.
Clearly, I could
be wrong but the arguments for why center around forward earnings projections
(see first quarter corporate profits), expanding P/E’s (see the rising yield
charts), a near perfect transition by the Fed from easing to tightening (see
the history books) and little to no fallout from the other central banks rapid
expansion of bank reserves (see Japan).
To be sure, all the aforementioned arguments could prove correct. My only issues are, what are the
probabilities that they are right, what is the magnitude of the downside if
they are wrong and how much protection do you want for Your Money until you
know those answers?
The
new R&D (medium):
When
bad behavior is rewarded (short):
The
latest from Jim Rogers (long but a must read):
The
latest from Lance Roberts (medium):
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