The Morning Call
The Market
Technical
The
indices (DJIA 15494, S&P 1697) had a good day; however, they remain out of
sync on their short term trends. The Dow
is in a trading range (14190-15550. The
S&P is in a short term uptrend (1661-1815).
Yesterday, I noted that it had not yet surmounted the upper boundary of
its former short term trading range and that raised a question as to the true
short term trend. That issue was
addressed forthrightly via yesterday’s pin action and seems to put that
question to rest.
Both of the
Averages are well within their intermediate term (14798-19798, 1581-2167) and
long term uptrends (4918-17000, 715-1800).
Volume rose
slightly; breadth improved though not as much as I would have expected. The VIX surprisingly was up.
I checked with
our internal indicator: in a Universe of 150 stocks. 34 are nearing their all
time highs (similar to the indices), 46 have already surpassed those highs and
70 aren’t close---not a robust reading and only mildly positive.
The long bond
also amazingly was down; though it remained above the upper boundary of its
short term downtrend. If it remains
above this boundary at the close today, the short term downtrend will be
invalidated and re-set to a trading range.
GLD was down,
invalidating its very short term uptrend.
It remains within both short and
intermediate term downtrends.
Bottom line:
yesterday’s performance as a bit confusing.
Certainly, the stock guys spoke loudly---no Summers = easier Fed policy
= higher stock prices. But it was
unexpected, to me at least, that bonds and gold sold off on the prospect of
more accommodative Fed policy. In
addition, the VIX was positive---usually a negative signal---and Market
breadth, as measured by our internal indicator, was not that impressive.
I am not
suggesting that stocks won’t continue to smoke to the upside; I am just saying
there is reason to be cautious. For our
Portfolios if the move continues to the upside, our Portfolios will use any
stock trading in its Sell Half
Range
I
am not sure if Bespoke meant these stats to portray good news or bad news; but
note the declining number of new highs following each of the last three
successive peaks in the S&P:
Fundamental
Headlines
However,
Summers pulling his name for consideration as Fed chief commanded most investor
attention; and since he was generally perceived to be to more hawkish on
tapering and raising interest rates, the stock market responded
enthusiastically. But as I noted above,
bonds and gold both sold off which leaves me wondering if the pin action wasn’t
more a function of short covering than fervor for an easier Fed.
At
the risk of talking my book, again, I will say that the bulls received two very
positive but unexpected bits of news in the last week: (1) Putin pulling
Obama’s chestnuts out of the fire on Syria
and (2) the aforementioned Summers’ decision.
My concern is two fold:
(1)
while avoiding getting involved in Syria
was unquestionably a plus, I am not sure an easy Fed is the best outcome. I have discussed the reasons ad nauseum here;
but in sum, postponing the pain of over indulgence simply makes the pain worse
when the piper must be paid.
Will tapering be the easy part? (medium):
Part Two (medium):
(2)
as I have noted previously, there are some fairly
important fiscal decisions that must be made in the near future. The question is, will investors/electorate
get as lucky with the decisions of our ruling class as they did on Syria
and the Fed? In addition, the German
elections will be over next week; and with that over, the business of trying to
right the EU fiscal ship will resume.
Along those lines, yesterday Spain
and Italy both
announced that their sovereign debt levels had risen. I am not saying, the good fortune won’t hold;
but I remain suspect of the political class’ decision making prowess.
One of the
benefits of an improving economy, even a sluggishly improving economy is an
increase of tax receipts and a lessening of transfer payments---which means
small deficits and a lower debt to GDP
ratio. That is all occurring and it is a
positive. However, remember that much of
the spending cuts come from (1) a wind down of the Iraq war and (2) sequestration;
it has nothing to do with our ruling class deciding to be fiscally responsible
and/or curtail entitlement spending, which is the long term bogyman. Nonetheless, a more healthy government budget
in the short term is something to appreciate.
Bottom line: Syria
now appears to be behind us---at least in the short term. However, as suggested in the International
section of the commentary, there remains a price that this country will likely
have to pay for the pathetic performance of Obama and His minions of the stage
of global power politics.
Janet Yellen may
be a short term positive for the stock guys (money for nothing) but, as you
know, I have my doubts about the Fed’s transition process regardless of when it
starts. We are still in the first act of this play.
The latest from
John Hussman (medium):
And Bill
Fleckenstein (medium):
Now we turn our
attention to the continuing resolution, the debt ceiling and the kick in of FY
2014 sequestration. ‘I am not going to suggest how these
issues get resolved. I am going to
suggest that most of the alternatives involve some pain---less now if our
leadership makes the right choices; more pain if its business as usual and they
kick the can down the road. The only
question in my mind is, when do the Markets start discounting the
inevitable? Clearly to date, I have been
wrong on its timing; and I certainly have little confidence that the Market is
going to start to agree with me today.’
.......in my opinion, that stocks are way
over valuing the likely earnings that can be produced from an economy on the
current trajectory of the US
Benchmarking
your portfolio is a losing bet (medium):
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