The Morning Call
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
Why
owning low yielding cash is not such a bad idea (short and a must read):
Fed
policies and Obamacare penalize small business (medium):
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