The Morning Call
The Market
Technical
The
indices (DJIA 15746, S&P 1770) were up yesterday. The Dow hit a new all time high, but the
S&P is still within its trading range of the last week and a half. They both are within all major uptrends:
short term (15211-20211, 1707-1861), intermediate term (15211-20211, 1622-2204)
and long term (5015-17000, 728-1850).
Volume
was up. Breadth improved; but the flow
of funds and on balance volume indicators are weak. The VIX fell but closed within its short term
trading range and intermediate term downtrend.
The
long Treasury was up slightly, but its pin action remains squirrelly. It finished within its short term trading
range and intermediate term downtrend.
GLD
was up, continuing to trade above the lower boundary of a very short term
uptrend. However, it is also in short
and intermediate term downtrends.
Bottom
line: the indices are in uptrends across
on timeframes. Given the Dow’s
performance yesterday, stocks may be ready for another leg up. If so, I am looking at the upper boundaries
of the Averages (17000/1850) long term uptrends as the most logical price
objectives. On the other hand, the bond
market has not been acting well and that makes me a bit nervous.
A trader might
want to try to play this next potential leg up but I would do so only if tight
stops are used. My strategy is to sell a
portion of any of our stocks that trade into their Sell
Half Range
Market
performance in the second year of the four year presidential cycle is the worst
(medium):
Update
on investor sentiment (short/medium):
Chart
of the day (short):
Fundamental
Headlines
Investors
spent most of the day anticipating the IPO of Twitter after the close along
with the nonfarm payroll number on Friday.
So the economic news was put on the back shelf. In the US ,
mortgage and purchase applications were down; these stats were offset by the
leading economic indicators coming in on consensus. Overseas, September EU composite PMI
and retail sales were below estimates,
while German factory orders were up strong.
In other words, the data is mixed---which has been the case for the last
couple of weeks. Nothing here to disturb
our forecast.
***overnight,
Spanish industrial production edged slightly higher and Ireland
is scheduled to receive its last tranche of bail out money. Most important, the ECB lower interest rates
which sent the euro plunging and US stocks higher pre-Market opening.
In the end, I
think that rising price talk on Twitter, the increased chatter about a
potentially easier Fed (discussed in yesterday’s Morning Call) coupled with the
Market having worked off an over bought condition helped stocks remain on the
plus side for most of the day.
Bottom
line: despite what appears to be a set
up for another leg up, I remain confident in the Fair Values generated by our
Valuation Model---meaning that stocks are fundamentally overvalued. So overvalued, in fact, that I couldn’t sleep
at night if I tried to get cute for a further move up. I am happy to own cash and would be
unconcerned if higher prices pushed our Portfolios into even higher cash
levels.
For
investors in general, my best advice at the moment is to use the current high
prices to sell any asset that hasn’t performed as expected or has done far
better than expected. You don’t have to
sell everything (our Portfolios are 60% invested in stocks), just put some of
your profits in your pocket.
Ritholtz
on Shiller’s valuation model (medium):
What
exit strategy? (16 minute video):
Update
on this season’s earnings ‘beat’ rate (short):
Investing for Survival
A
great article on diversification (medium):
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