The Morning Call
The Market
Technical
It
was Tuesday, so stocks have to be up (now 19 in a row). The indices (DJIA 15387, S&P 1669) had
another decent day, closing within all major uptrends: short term (14484-15202,
1588-1665 [both were above their upper boundary]), intermediate term
(13969-18969, 1481-2069) and long term (4783-17500, 688-1750).
Volume
rose slightly; breadth was mixed. The
VIX was up again on an up price day---continuing to build support for owning
volatility as a hedge.
GLD
reversed its big Monday rally, selling off substantially. As you know, I am watching GLD closely; but I
want a clear change of direction (up) before feeling comfortable re-building
this position. Let’s see what it does
today.
Bottom line: stocks
continue to advance while the number of technical indicators portraying hyper
extension grows (see below). Sooner or
later, one of those two things have to change---if for no other reason than if
all technical indicators are pointing down, the number of indicators pointing
up has to increase. Until that happens,
I grin and bear it.
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
Risk
appetite index (short):
Another
extreme sentiment indicator (short):
A
history of DJIA recoveries (short):
Fundamental
Headlines
Another
day with few economic numbers either here or abroad. The one datapoint was weekly retail sales in which
all readings were up for the first time in several weeks. That’s great; but this is a secondary
indicator which by itself isn’t going to cause anyone to alter their forecast.
The
rest of the day was spent focused on our ruling class:
(1)
Apple CEO Tim Cook defended before the senate his
company’s tax accounting policies---quite well I think. By the end of his testimony, it was apparent
that instead of congress putting him on the witness stand for taking advantage
of the tax laws as they are written, it is congress that should have been on
the stand for authoring a totally dysfunctional, f**ked up tax code
(2)
former IRS head
tried to defend his organization before the senate with considerably less
success than Mr. Cook; and the entire administration is scrambling to explain
how they knew that the IRS was culpable in
zeroing in on conservative groups but didn’t tell Obama [hint: plausible
deniability]. It will be interesting to
see how this ends.
(3)
two regional Fed bank heads made speeches, both
sounding fairly dovish. Perhaps they
were anticipating the Ber-nank’s congressional testimony today as well as the
release of the minutes of the latest FOMC meeting. Ordinarily, those two events would likely
dominate the headlines for the day; but in a week ahead of a holiday [lots of
people leaving early] that has little data, Bernanke’s testimony and the
minutes may be the sole focus of investors.
Regulators refuse to rein in bank derivative
trading (16 minute video but a must
watch):
Another bit of clarity from the Fed
(just kidding):
Although you won’t find the Fed
trumpeting this tidbit (medium):
Is the Fed failing to inflate
(short):
***over night
the Japanese central bank met and reiterated its triple down, all in, balls to
the wall monetary easing.
Everything you
wanted to know about monetary easing but were afraid to ask (20 minute video
but today’s absolute must watch):
Irrational exuberance in Europe ?
(short):
Bottom
line: ‘stocks (as defined by the S&P) get more overvalued (as defined
by our Model) every day; and as long as investors’ mood remains highly
optimistic, that is not likely to change.
I have no idea how much higher stocks will go. But I don’t think that is the appropriate
measure. The issue is, are you smart enough to ride what is left of this rally
and get out before stock prices are lower than they are today.
If you are, you have my utmost
admiration. I, regrettably, am not that
smart. So I rely on a Model that has
worked on a long term basis for four decades.
I am wrong to have our Portfolios at 40% cash today. I am content to be wrong on a short term basis
to be sure my principal stays in tact long term.’
This
article on confirmation bias is particularly apropos for me in the current
market. My reply is that (1) the
equations in our Valuation Model were developed long ago and updated as events
dictate and (2) the Sell Half Price targets are determined by applying current
data to the historical relationships set in (1). So I can choose to rely on those historical
relationships or I can ignore them and go with arguments like ‘it’s different
this time’ or the Fed will successfully manage the transition from ease to
tightening---for which there is not one iota of historical proof basis. I choose the former.
EBITDA
and the S&P (short):
Goldman’s
bullish call (short):
Subscriber Alert
In
its most recent review, Total System Services (TSS )
failed to meet the quality criteria for inclusion in the Dividend Growth
Universe. Accordingly, it is being
Removed from the Dividend Growth Universe and Sold from the Dividend Growth
Portfolio.
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