The Morning Call--Dow getting close

The Morning Call

10/29/13

The Market

           

    Technical

            The indices (DJIA 15568, S&P 1762) had a calm but mixed day (Dow down, S&P up).  Still the DJIA finished above the upper boundary of its short term trading range (14190-15550) for the second day.  Under our time and distance discipline, a close above 15550 tonight will confirm the break.  The S&P remains within its short term uptrend (1696-1850).

Both of the Averages are well within their intermediate term (15152-20152, 1614-2196) and long term uptrends (4918-17000, 715-1800).

   

            Volume declined; breadth was poor.  The VIX was up, finishing within its short term trading range and intermediate term downtrend.  Our internal indicator is a bit more positive.  However, at the close last night, only 63 stocks in our Universe of 149 stocks were making new highs.

            The long Treasury rose, staying within its short term trading range and intermediate term downtrend.  It continues to build a reverse head and shoulders pattern.

            GLD was up, closing within a very short term uptrend.  It is still within a short and intermediate term downtrends.

            http://www.zerohedge.com/news/2013-10-28/gold-tests-5-week-highs-should-continue-pushing-higher-citi

Bottom line:  if the DJIA remains above 15550 thru the close today, it will have successfully challenged its short term trading range.  With the indices back in sync, traders may want to increase their equity exposure on a trading basis.  A conservative way to trade this would be the global multi asset ETF (IYLD).  A choice with a bit more beta would be the Russell 2000 growth ETF (IWO).

Odds of a solid year end Market performance (short):

http://blog.stocktradersalmanac.com/post/Odds-of-Solid-SPY--DIA-Yearend-93

As far as our Portfolios go, if one of our stocks trades into its Sell Half Range, our Portfolios will act accordingly.

 

    Fundamental

    

      Headlines

            As the pin action suggested, yesterday was a pretty ho hum day.  We did get three US economic datapoints:  September industrial production as well as capacity utilization were both ahead of expectations, September pending home sales were a disappointment and the October Dallas Fed business activity index was well less than anticipated although the manufacturing sector remained strong.  The most important of these was the industrial production number; so I maintain my confidence in our forecast.

            Investors spent the rest of the day discussing the FOMC meeting which starts today.  The central point, as you might expect, was the timing of tapering.  At the moment, there seems to be a contest for who can forecast the latest date for its implementation---which, of course, plays into the Market theme of all news, is good news as long as the Fed keeps pumping.

Bottom line:  I remain confident in the Fair Values generated by our Valuation Model---meaning that stocks are overvalued.  So our Portfolios maintain their above average cash position.  Any move to higher levels would encourage more trimming of their equity positions.

            However, as I noted above, technically the Market appears to be setting up for another leg up---although to be clear, I am not a trader and won’t be chasing stocks up.

            The latest from John Hussman (medium):

            http://advisorperspectives.com/commentaries/hussman_102813.php

            The odds of high returns continuing (short):

            http://www.mebanefaber.com/2013/10/26/probabilistic-investing/

            Five signs that the Market is getting expensive (medium):

            http://www.marketwatch.com/story/irrational-exuberance-part-3-2013-10-28

            A somewhat different take on Fed policy and the stock market (medium):

            http://www.minyanville.com/business-news/markets/articles/The-Fed-POMO-Isn2527t-Really-Driving/10/28/2013/id/52419?refresh=1

            From JP Morgan---the most extreme liquidity bubble (medium):

            http://www.zerohedge.com/news/2013-10-28/jpm-sees-most-extreme-ever-excess-liquidity-bubble-after-3-trillion-created-first-9-

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 Investing For Survival is to help other investors build wealth and benefit from the investing lessons he learned the hard way.