The Morning Call
The Market
Technical
Yesterday,
the indices (DJIA 15302, S&P 1648) gave up much of Tuesday’s gain, but
still closed well within all major uptrends: short term (14568-15292, 1600-1677
[ the Dow was above its upper boundary]), intermediate term (14002-19002,
1487-2075) and long term (4783-17500, 688-1750).
Volume
declined; breadth weakened. The VIX rose
again but remains within its short and intermediate term downtrend. Bond prices continued to weaken; and in case
you didn’t notice, the ten year Treasury now yields more than the S&P.
Keep
in mind that Tuesday’s surge in prices notwithstanding, the trend change
portended by last Wednesday’s ‘outside down day’ still holds. Indeed, during Tuesday’s positive
performance, the S&P touched the prior Tuesday’s (the day before the
‘outside down day’) intraday high and immediately sold off; and then yesterday
prices fell. The critical level to watch
is 1675. A break above that level would
cancel the negative implication of the ‘outside down day’. If 1675 can’t be surpassed, it could mark the
top of the current rally.
GLD
was up again. It finished above the
recently formed double bottom and the lower boundary of its long term uptrend;
however, it has yet to break above any downtrend. Until it does, our Portfolios remain on the
sidelines.
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.
Here
is a really interesting study on the ‘sell in May and go away’ thesis (medium):
The
history of post election year rallies (short):
Fundamental
Headlines
There
were only a couple of secondary economic indicators released yesterday; and
they were mixed: weekly mortgage applications fell, while purchase applications
rose; weekly retail sales were mixed.
Nothing here to move stock prices or prompt any change in forecast.
On
a macro basis the OECD lowered its 2013 global economic growth forecast, while
the Bank of International Settlements warned central banks about bank lending
practices (medium and today’s must read):
Those
along with continued turmoil in the debt markets had investors on edge. At the moment, all minds seem to be focused
on what is driving interest rates higher---which at the moment is the object of
a lot of pundit speculation but not much certainty. As the answer gradually emerges (actual or
fear of Fed tightening, rising inflation, increased demand for capital), it
should tell us something about Market direction; but in the short term, we may
only get increased volatility.
What
does high yield credit market weakness mean for stocks (short):
Great
must watch video on Abenomics and where it all ends (7 minutes):
Volcker
on Bernanke (you have to read this; it’s short):
Bottom line: the
economy continues to struggle along. Our
ruling class seems hopelessly embroiled in a string of Obama scandals---which at
least keeps them from doing us harm and could very well be a positive if Obama
has to compromise on some critical issues in order to save His own ass. Let’s see if the GOP has learned from the
Obama mantra of ‘never let a crisis go to waste’.
Meanwhile the
global economy is not improving, if you believe the OECD and the BIS ;
and that means our EU ‘muddle through’ scenario remains at risk.
The big question
is, is recent volatility in the currency and bond markets a sign that the jig
is up for the central bank money printing?
As I have noted repeatedly, we are in uncharted waters; so I am not sure
how the issue gets resolved. My guess is
that once the markets see that the emperor has no clothes, it will be too late
to do any portfolio adjustments. On the
other hand, markets could just be having a bit of indigestion after a record
run.. Whatever happens, I am happy with
our current investment strategy.
FDIC
report on bank first quarter earnings
For
the bulls (medium):
Update
on Macro Markets Risk Index (short):
Cyprus
bank deposits under the ‘capital control’ regime (short):
Subscriber Alert
Recently,
Tiffany (TIF -$79) stock price spiked on
better than expected earnings. While it
is still some distance from its Sell Half
Range
As
you recall, Pioneer Southwest Energy (PSE-$33) recently received a purchase
offer and the stock popped. The High
Yield Portfolio Sold Half at the time.
With the deteriorating price action of utility stocks, the High Yield
Portfolio will Sell the remainder of this position at the Market open.
The
stock price of Amerigas Ptrs (APU -$46) has
traded above the upper boundary of its Buy
Value Range APU >
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