The Morning Call
The Market
Technical
The
indices (DJIA 15091, S&P 1633) turned in a mixed day (Dow down, S&P
up), closing within all major uptrends: short term (14382-15112, 1575-1649),
intermediate term (13906-18906, 1475-2064) and long term (4783-17500,
688-1750).
Volume
was flat and still quite low; breadth was down.
The VIX was off fractionally, remaining within both its short and
intermediate term downtrends.
GLD
had a rough day, finishing right on the lower boundary of its intermediate term
down trend. It is closing in on its mid
April low and the lower boundary of its long term uptrend. An unsuccessful challenge will likely prompt
our Portfolios to start re-building this position.
Bottom line: sell
offs remain shallow, allowing stocks to work off an overbought condition in a
quiet, civilized manner without losing much by way of momentum. The trend remains firmly up with no sign that
investors will allow anything to spoil their current euphoric mood.
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
Sentiment
summary (medium):
A
look at the Nikkei (short):
Fundamental
Headlines
Yesterday’s
economic news was upbeat (following last week’s positive though admittedly
sparse data flow): April retail sales were stronger than anticipated and while
March business inventories were flat, sales were up markedly. It is too early to assume that the recent
highly mixed progression of stats has turned to the plus side; but the last six
news days has the yellow light flashing a bit slower.
We
got one international economic datapoint---Chinese power consumption is
declining noticeably, supporting the decision to remove Chinese economic growth
as a potential positive factor impacting our outlook.
***over
night EU industrial production came in ahead of estimates while German consumer
confidence declined.
The
other two issues that kept investor attention were:
(1)
the WSJ Hilsenrath article on Fed strategy to
transition into a tightening mode; although judging by investor response, either
no one believes it or the transition is already being discounted. Most of the pundits are pushing the former
point of view and that makes the most sense to me. On the other hand, Hilsenrath is Bernanke’s
bitch, so I doubt this article sprang full grown from inside his head. Hence, one probably shouldn’t dismiss this
article out of hand.
The latest
entry into the global money printing race (medium):
(2)
the growing scandal over alleged IRS
targeting of conservative organizations.
We don’t have all the facts yet, so I am making no judgments. But if top administration officials get
tagged with responsibility, then this problem along with Benghazi
could seriously hamper a second term Obama agenda. Strictly from the standpoint of fiscal
policy, that would likely be a positive for opponents of more government
spending and higher taxes.
Bottom
line: stocks are overvalued; and
investors are choosing to ignore both bad news and the risks that could lead to
a serious revaluation of equities. We
know that Markets can remain irrational far longer than anyone could imagine;
and in my opinion, that is what is occurring now.
The good news is
that our Portfolios are 60% invested and benefiting from the euphoria.
In addition, they are being given the opportunity to Sell some of their
holdings at historically high relative and absolute values. That is how I designed our Sell
Discipline. It is working as frustrating
as it may be at this moment.
The
latest from Lance Roberts (medium):
The
latest from John Hussman (medium):
For
the bulls on fiscal policy (medium):
For
the bears on monetary policy (medium):
A
look at the S&P P/E ratio (short):
http://www.crossingwallstreet.com/archives/2013/05/the-sp-500s-pe-ratio-is-at-a-three-year-high.html
A
look at the Rule of 20 (short):
S&P
earnings expectations (short):
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