Wednesday, June 5, 2013

The Morning Call--Technical/psychological factors starting to weaken


The Morning Call

6/5/13

The Market
           
    Technical

            The indices (DJIA 15177, S&P 1631) had a volatile and down day; nonetheless, they closed within all major uptrends: short term (14612-15320, 1609-1688), intermediate term (14081-19081, 1489-2077) and long term (4783-17500, 688-1750).     

            Volume declined as did breadth.  The VIX was off slightly---down on a down day---the reverse of what we observed last week.  It remains within its short and intermediate term downtrends, though it is still close to the upper boundary of the short term downtrend.

            GLD fell.  While it didn’t quite get back to the top of the shortest term downtrend, it was close enough for government work.  So our Portfolios will continue to stay on the sidelines.  It remains above the double bottom and the lower boundary of its long term uptrend.

            Bottom line: the Market continues to struggle a bit.  Yesterday, the string of up Tuesdays was broken.  Plus the ‘buy the dippers’ are starting to experience some cognitive dissonance.  Nevertheless, the Averages remain in all uptrends.  So this current period of indigestion need not lead to anything worse than a retreat to the lower boundary of their short term uptrends. Accordingly, my attention is now on those boundaries as well as the 1675 level on the S&P---a break of which would negate the downtrend off the May 22 ‘outside down day’.
           
    Fundamental
    
     Headlines

            Yesterday was a quiet day on all counts.  US economic stats were all secondary indicators: weekly retail sales were positive and the April trade deficit was less than anticipated.  Nothing here that is either Market moving or forecast re-thinking.

            The Market itself was one of the day’s main headlines; that is, one of the current technical/psychological supports (it’s Tuesday, so stocks are up) was broken; and the ‘buy the dippers’ are likely getting a bit nervous.

            The other headline came from the Kansas City Fed chief who voiced support for a ‘tapering’ move by the Fed.  It looks increasingly like talk of a Fed policy reversal isn’t going away, though there is considerable disagreement regarding its consequences. 

For the bulls, that means a change in rhetoric.  Only  a couple of weeks ago they were arguing that Fed tightening was nowhere on the horizon.  They are now opining that Fed tightening would be a positive because it implies that the economy is improving. 

For the rest of us, we are bothered by the dismal history of monetary policy transitions.  I refer you to the John Hussman and Bill Gross articles in yesterday’s Morning Call and the two links below.   

            The latest from Mohamed El Erian (medium):

            It is not growth hopes that are backing up interest rates (short):

Bottom line: stocks (as measured by the S&P) are overvalued (as measured by our Valuation Model).  They are so overvalued that a breakdown of both the short and intermediate term uptrends would be insufficient to return prices to Fair Value (S&P 1419).  So I am not even close to making a Buy List.  On the other hand, I continue to watch for any of our holdings that trade into their Sell Half Range; and if they do, our Portfolios will act accordingly..

            Why owning low yielding cash is not such a bad idea (short and a must read):

            Fed policies and Obamacare penalize small business (medium):




Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at

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