The Morning Call
The Market
Technical
The
indices (DJIA 15194, S&P 1695) rose yesterday. The Dow closed within its short term trading
range (14190-15550) and below its 50 day moving average. The S&P finished in a short term uptrend
(1674-1828) and above its 50 day moving average. Hence, the Averages continue out of sync
(directionless) on a short term basis.
Both of the
Averages are well within their intermediate term (14940-19940, 1587-2173) and
long term uptrends (4918-17000, 715-1800).
Volume fell;
breadth improved. The VIX declined 6%
but remained within its short term trading range and intermediate term
downtrend. This indicator has been
directionless for over a year.
Bearish
divergences (short):
The long
Treasury was off, closing within a short term trading range and an intermediate
term downtrend. It is a bit surprising
that bond prices are drifting sideways in the midst of a government shutdown
and a potential default if the political mud wrestling continues as the
government hits the debt ceiling.
GLD plunged 3%
but did not challenge the boundaries of its very short term, short term or
intermediate term downtrends.
Bottom
line: I noted in yesterday’s Morning
Call:
‘History tells us that Market weakness
resulting from the lack of political congress tends to be shallow and short
lived. Hence, I am not expecting a lot
of follow through to the downside, even if the government shuts down.’
At the very
least, yesterday’s pin action was a great example of the axiom: sell the rumor,
buy the news. It likely was also a
reflection of the favorite hot money notion right now, to wit, anything (in
this case, fiscal turmoil) that prolongs QEInfinity is great for stocks.
If one of our
stocks trades into its Sell Half
Range
Fundamental
Headlines
Overseas,
the EU September PMI edged up slightly while
unemployment remained near highs---though employment tends to be a lagging
indicator.
All
in all, this information fits our forecast.
But
then, once again, the economic numbers took a back seat to the
politicians. Unless you are in a cave,
you know that the government shutdown.
The media spent the day (1) suggesting that this was all the GOP’s fault
and (2) speculating on when collectively the republicans will come to their
senses. In other words, a wasted
day.
It
didn’t particularly surprise me that stocks rallied on the shutdown. (1) as I noted above, it was classic sell the
rumor, buy the news, (2) I think that most investors believe that he who is
least governed is best governed---and what better way to get less government
than to shut a major part of it down, (3) it represents yet another excuse for
the Fed to continue money for nothing and (4) the real pinch doesn’t come until
the debt ceiling negotiations which pose the risk of a default on US debt.
Thoughts on the
shutdown (medium):
Opposing
Obamacare is not anarchy (medium):
Wednesday
morning humor (4 minute video):
Bottom
line: in sum, I remain little worried by the shutdown and far less concerned
about a potential default than the ruling class doomsayers and their media lackeys. In my heart, I hope that the GOP hangs tough
on its insistence that congress not be exempt from Obamacare and that
individuals have the same right of deferral as big business and the unions long
enough for the point to get hammered home to the electorate. But the cold hard
facts are that they don’t have the votes; so they need to live to fight another
day. They have accomplished all that they
can do at this point---they have the dems on record.
Barring a
scenario in which the ruling class decides on mutually assured destruction, I
see no reason why the intramural bickering in DC would lead a damaging Market decline. However,
given the extent to which stocks are overvalued (at least according to our
Model), you never know what will spawn serious investor reflection and lead to
a reversion to the mean. I am not saying
this latest episode of an internecine food fight will ignite a Market flush; I
am just saying that it could.
.......in my opinion, stocks are way over
valuing the likely earnings that can be produced from an economy on the current
trajectory of the US
Ken
Rogoff on the budget battle (medium):
Junk
bond issues and IPO’s suggest a bubble (medium):
More
on valuation (medium):
The
credit bubble in four easy charts (medium):
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