The Morning Call--Wait till the midnight hour

The Morning Call

10/17/13

The Market

           

    Technical

            Euphoria reigned yesterday as the indices (15373, S&P 1721) surged higher on the prospects of a budget/debt ceiling compromise.  The Dow ended the day within its short term trading range (14190-15550) and back above its 50 day moving average.  The S&P closed within its short term uptrend (1683-1837).  The Averages remain out of sync short term.

   

            Both of the Averages are within their intermediate term uptrends (15040-20040, 1603-2189) and long term uptrends (4918-17000, 715-1800).

            Volume was anemic, surprisingly.  Breadth improved.  The VIX plummeted 20%, finishing within its short term trading range and its intermediate term downtrend.

            The long Treasury rose 1% but continues to trade within its short term trading range and its intermediate term downtrend.

            GLD continues its dismal performance, ending below the upper boundaries of its very short term, short term and intermediate downtrends and building a right shoulder of a head and shoulders formation.

Bottom line:  with the likelihood of a deal getting done on the budget/debt ceiling problems, investors tip toed through the tulips yesterday.  As you know, I thought the odds of a deal were pretty high, the combative rhetoric notwithstanding.  We will know soon enough if there is a ‘sell on the news’ reaction.  In the meantime, the Averages pushed above Monday’s highs.

At this moment, the indices have not reached new all time highs, though they are close; and they remain out of sync short term.  I wouldn’t be Buying this market at this level, not even if I was skilled trader (which I am not).  Wait to see if the Averages can bust through the former highs and can get back in sync.

Nonetheless, if equities move up in price and any of our stocks trade into their Sell Half Range, our Portfolios will act accordingly.

            Buy signal from Stock Traders Almanac (short):

            http://blog.stocktradersalmanac.com/post/Open-Season-On-Stocks-Best-6-Months-MACD-Buy-Signal-DIA-SPY-QQQ-IWM

    Fundamental

    

     Headlines

            Yesterday’s economic news was just so so: weekly mortgage applications rose but purchase applications fell, homebuilder confidence declined and the latest Fed Beige Book was basically unchanged from its predecessor. Overseas, the EU inflation rate came in at a three and a half year low.   While I have been glossing over the data of late due to the circus in Washington, nothing has occurred that makes me want to alter our forecast.

            Speaking of the DC circus, it has wrapped up right on time (i.e. the last possible minute).  The terms of the compromise include (1) funding the government through January 15 and (2) extending the government’s borrowing authority through February 7.  The bad news is there was nothing done on Obamacare (though the dems now own it and the unwillingness to subject themselves to its terms, lock, stock and barrel) .  The good news is that the sequestration was left untouched.

Bottom line: for all the gnashing of teeth and tearing of hair, we ended exactly where we thought (1) a deal before the deadline, (2) a deal that is a half-assed-kick-the-can (entitlement and tax reform)-down-the-road agreement that will keep the ruling class in business but do little for you and me.  The extra treat is that we get to face this same problem after the Holidays; and the odds of an outcome any different than this time around I would estimate at a round zero.  I don’t see how anything can change until the composition of congress is altered,  

Meanwhile, this exercise in masturbation is likely to have further damaged business and consumer confidence.  Indeed, it is worse because everyone is now looking three months down the road, knowing that this whole process must be endured again. 

The good news is that at least investors get to now switch their focus to earnings reports, catching up on missed economic news and rejoicing over money for nothing instead of  suffering through our ruling class’s circular firing squad.

            Global asset class positioning (short):

            http://www.thereformedbroker.com/2013/10/16/chart-o-the-day-most-over-and-under-owned-trades/

            Lance Roberts ponders five key issues (medium):

            http://pragcap.com/5-things-to-ponder-this-week

            Jamie Dimon on the debt end game (short):

            http://www.zerohedge.com/news/2013-10-16/jamie-dimon-us-debt-endgame

            A graphic look at the US economy (short):

            http://advisorperspectives.com/dshort/guest/Ted-Kavadas-131016-Disturbing-Charts.php

            The latest from Ed Yardini (short):

            http://blog.yardeni.com/2013/10/the-trauma-of-2008-has-been-bullish.html

     Subscriber Alert

            The stock price of Nucor (NUE-$50) has risen above the upper boundary of its Buy Value Range.  Accordingly, it is being Removed from the Dividend Growth Buy List.  The Dividend Growth Portfolio will continue to Hold NUE.

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.