The Morning Call
The Market
Technical
The
indices (DJIA 15467, S&P 1754) resumed their upward thrust yesterday. The Dow remains within its short term trading
range (14190-15550), though it is clearly getting close to its upper boundary. The S&P finished within its short term
uptrend (1689-1843). They continue to be
out of sync.
Both
of the Averages are within their intermediate term uptrends (15080-20080,
1609-2195) and long term uptrends (4918-17000, 715-1800).
Volume
rose slightly; breadth improved. The VIX
increased, leaving it within its short term trading range and intermediate term
downtrend.
The
long Treasury was up 1% but remains within its short term trading range and
intermediate term downtrend.
GLD
penetrated the upper boundary of its very short term uptrend. The break will be confirmed if it remains
above that boundary through the close tomorrow.
It closed within its short term and intermediate term downtrends.
Bottom
line: the S&P crept to another new
high yesterday, though the Dow still lags and is out of sync. As long as this state of affairs exist among
the Averages, caution should be exercised.
The positives are that we are entering the best six months of the year
performance-wise and the Fed continues to pump ever more liquidity into the
system. The bad news is that we have
round two of budget/debt ceiling negotiations coming in 70 days and the Market
right now is very overbought.
If equities move
up in price and any of our stocks trade into their Sell
Half Range
Fundamental
Headlines
The
good news is that the information flow on economic data has started to pick up
following the re-opening of the government; the bad news is that yesterday
stats didn’t give us much information on direction: September nonfarm payrolls
rose less than expected though August’s number was revised up enough to offset
the disappointment, weekly retail sales were mixed, the October Richmond Fed
manufacturing index rose slightly and August construction spending was better
than anticipated. Of course, in the era
of good news is good news and bad news is good news, then mixed news must also
be good news. Certainly, a blasé set of
datapoints reinforces the conviction that the end of QEInfinity is nowhere is
sight.
A
small dose of reality (medium and today’s must read):
The
Fed’s exit problem (medium):
QE
has helped the rich not the poor (medium):
The
Fed’s track record (short):
The Fed an
unemployment (short):
Bottom line:
equities, in my opinion, are overvalued unless you believe that (1) corporate
profits are about to accelerate which seems unlikely given [a] the current
historically high level of margins {mean reversion} and [b] the sluggishness of
global economic activity or (2) interest rates, inflation or both can decline
from present levels which is going to be tough unless we get a deflationary
event---and then you probably don’t want to own stocks in that environment.
Technically, the
Market could be setting up for a trade to the upside (assuming the Dow can
break out of its trading range); but that strategy works only for the strong of
heart and fleet of foot.
The most
important information on which I wait are the signs of how the last three weeks
have impacted business and consumer confidence.
****overnight,
the Chinese central bank may have begun monetary tightening. As you know, I express my worry constantly
about QEInfinity ending poorly. When and
how that occurs has been a matter of speculation, Aside from a Fed decision to do so, I have also
suggested that Markets could decide on their own that QEInfinity was going to
end badly, refusing to buy government paper except at substantially higher
prices. What I have not considered is
that this change of heart by the Markets could come from an outside
source---like the unwinding of its own QEInfinity by another major central bank.
Another
thought about tapering that I hadn’t considered (short):
What
if the Fed decides to not taper at all (medium):
Another
mega fund returns capital to investors (short):
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