The Morning Call
The Market
Technical
The
indices (DJIA 15639, S&P 1767) moved higher yesterday. Both remained within their short term
(15209-20209, 1703-1859), intermediate term (15209-20209, 1619-2201) and long term uptrends (5015-17000, 728-1850).
Volume
was almost nonexistent; breadth improved.
The VIX fell, remaining within its short term trading range---though it
is nearing the lower boundary of its short term trading range---and its
intermediate term downtrend.
The
long Treasury rose, ending within its short term trading range and intermediate
term downtrend. It continues to build a
reverse head and shoulders pattern
GLD
fell but remained within its very short term uptrend. However, it is still within short and
intermediate term downtrends. It is also
building a head and shoulders formation.
Bottom
line: the indices are in uptrends across
on timeframes, though the Dow is somewhat suspect in my opinion. The relative calm trading over the last five
sessions is most likely stocks working off an overbought condition through time
versus direction. Upside potential, in
my opinion, is marked by the upper boundaries of the Averages (17000/1850) long
term uptrends. If the downside is simply
Fair Value (11575/1436), the risk/reward from current levels is not all the
attractive.
A trader still
might want to play for another leg up but I would do so only if tight stops are
used. My preferred strategy at these
levels is to take advantage of the current high prices to sell any stock that
has been a disappointment and to trim the holding of any stock that has doubled
or more in price.
If one of our
stocks trades into its Sell Half
Range
The
latest from Todd Harrison (medium):
November
sentiment survey (medium):
Anatomy
of a bubble (medium):
Fundamental
Headlines
Only
one US
datapoint yesterday: August factory orders fell 0.1% versus consensus of an
increase. Overseas, there were a number
of reports: Eurozone PMI was up slightly, UK
construction PMI was quite strong and
Chinese nonmanufacturing PMI rose more than
at anytime in the last 13 months.
Clearly the factory orders number was not what we wanted (and likely
accounted for early Market weakness) but the international stats were a plus.
***over
night the EU Commission lowered its 2014 growth forecast for Europe, the
October UK service PMI surged and the
Chinese premier warned of loose money.
Also
playing to the positive side was another multiple point decline in oil prices
which have been falling since mid October.
Historically, more often than not, lower oil prices were sign of
economic weakness---which would be a negative.
However, this time around it is more a function of rising supply. As you know, this is one of the secular
pluses that I list in every Closing Bell.
More supply and lower (gasoline) prices (1) give consumers an increase
is disposable income and (2) provide economic inducement for manufacturers to
locate in the US
where energy is abundant and attractively priced.
Bottom
line: I remain confident in the Fair
Values generated by our Valuation Model---meaning that stocks are fundamentally
overvalued. However technically, stocks
seem like they want another leg up. I
certainly wouldn’t argue against it.
That said, I am
not a trader and couldn’t sleep at night if I tried to get cute for a further
move up. I think it makes more sense to
take advantage of current high prices
and use this opportunity to either weed out the losers or book some
profit in a highly successful investment.
Update
on valuation (medium):
The
latest from John Hussman (medium):
The
latest from Doug Kass (medium):
The
Fed is trapped (medium):
Income
redistribution by the Fed (medium):
Ken
Rogoff warns of wealth taxes (medium):
http://www.zerohedge.com/news/2013-11-04/ken-rogoff-warns-wealth-taxes-arent-enough
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