The Morning Call--Higher prices = more cash

The Morning Call

11/6/13

The Market

           

    Technical

            The indices (DJIA 15618, S&P 1762) rested again yesterday.  However, they remained within all major uptrends: short term (15209-20209, 1706-1860), intermediate term (15209-20209, 1619-2201) and long term (5015-17000, 728-1850).

            Volume rose; breadth declined.  The VIX was up, finishing within its short term trading range and its intermediate term downtrend.

            The long Treasury got whacked, but closed within its short term trading range and its intermediate term downtrend.  It also continues to build a reverse head and shoulders pattern.  However, it did violate a very short term uptrend---not crucial but something to pay attention to.

            GLD declined but remained within its very short term uptrend.  It is remains within its short and intermediate term downtrends and continues to develop a head and shoulders formation.

Bottom line:  the indices are in uptrends across on timeframes but, at the moment, they are continuing to work off an overbought condition.  However, given the very positive calendar element (the Holidays) as well as the vigorous pursuit of money for nothing, a rally through year end makes sense technically speaking.  I think that the upper boundaries of the Averages (17000/1850) long term uptrends are the most logical price objectives.

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 any of our stocks that trade into their Sell Half Range.

            What happens if the Market doesn’t correct (medium):

            http://www.minyanville.com/trading-and-investing/how-to-invest/articles/What-Happens-If-the-Stock-Market/11/4/2013/id/52530?page=1

    Fundamental

    

     Headlines

            Yesterday’s US economic news included weekly retail sales which were mixed and the October ISM nonmanufacturing index which was better than consensus.  Overseas, the EU Commission lowered its 2014 growth forecast for Europe, the October UK service PMI surged and the Chinese premier warned of loose money.

           

            ***over night, the September EU composite PMI was reported down as were EU retail sales; however, German factory orders surged.

            I didn’t have a great feel for what drove stock prices yesterday.  It did appear that the  positive ISM services number initially got investors fretting about the ‘good news is bad news’ theme---which would account for the early sell off..  Then later in the day, a Goldman report suggested that the Fed would be easier longer than now anticipated and that brought prices back to near even on the day.

            Goldman: the Fed’s next move (medium and today’s must read):

            http://www.businessinsider.com/hatzius-fed-will-lower-unemployment-threshold-to-6-percent-2013-11

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.  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 am happy to own cash and would be unconcerned if higher prices pushed our Portfolios into even higher cash levels..

           

            Lance Roberts on the shape of tapering (medium):

            http://www.zerohedge.com/news/2013-11-05/guest-post-why-fed-likely-wont-taper-long-anytime-soon

            Bubble still building (medium):

            http://www.zerohedge.com/news/2013-11-05/bob-janjuah-bubble-still-building

            The destructiveness of Fed policy (medium):

            http://www.zerohedge.com/news/2013-11-05/because-fed-mortgage-market-liquidity-bad-when-bear-stearns-failed

            The untenable position of the governments of the US, Europe and Japan.  The referenced ‘super tax’ is a 10% wealth (not income) tax. (medium):

            http://www.zerohedge.com/news/2013-11-05/icecap-asset-management-super-taxes-and-why-elvis-has-left-building

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.