The Morning Call
The Market
Technical
The
indices (DJIA 15831, S&P 1782) had a good day, both remain within uptrends
across all time frames: short term (15273-20273, 1715-1869), intermediate term
(15273-20273, 1624-2206) and long term (5015-17000, 728-1850).
Volume
was up but is still anemic; breadth improved.
The VIX declined, finishing near the lower boundary of its short term
trading range and within its intermediate term downtrend.
The
long Treasury was up slightly, closing within its short term trading range and
its intermediate term downtrend.
GLD
rose but remained below the lower boundary of its very short term uptrend. If it ends today below that boundary, the
break will be confirmed. It continues in
its short and intermediate term downtrends.
Bottom
line: all trends of both indices are up,
despite numerous signs that breadth is deteriorating. However, I continue to believe it reasonably
likely that the Averages will take a run at the upper boundaries of their long
term uptrends (17000/1850).
If a trader
wants to play this potential leg up but I would do so only if tight stops are
used. As a longer term investor, I would
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
16
ways to improve performance (medium):
S&P
breaks out to more overbought position (short):
Fundamental
Headlines
One
secondary US
economic indicator was reported yesterday: weekly mortgage and purchase
applications fell. Not really that big a
deal. However, overseas Japanese
machinery orders fell as did EU industrial output. That brought hints from the ECB that QE of
some sort may be on the way.
And:
***overnight,
Japanese third quarter GDP was up but not at
the pace of the first and second quarters; German GDP
also slowed in growth; French and Italian GDP ’s
were negative and as a result, the EU GDP
was below expectations
The
above hint from the ECB along with the release of Yellen’s prepared remarks for
her confirmation hearing today---which were ultra dovish---got investors jiggy
and provided the fuel for another big up day.
That Yellen is a dove is not exactly new news; but I guess yesterday was
another one those ‘any news is good news’ days. You know my thoughts---the
longer this goes on, the worse the outcome.
Kevin
Warsh piles on (medium):
Major
central bank asset growth versus GDP
(short):
The
other item worth mentioning is the resumption of budget talks. The initial Dem position is to rescind the
sequester and spend more money---what else is new. To that end there were hearsay reports
(though I have nothing concrete) that
the CBO’s next series of budget projections will be show a shoot the moon
deficit without rescinding the sequester.
That, of course, is way down the road.
The immediate issue is how our ruling class comes up with a FY2014
budget; if indeed they can do it at all.
Bottom line: the
assumptions in our Economic and Valuation Models remain on track, including
those of any over easy Fed that bungles the transition from easy to tight money
and a half assed solution to our fiscal problems. Of particular concern to me is the former
which I worry will end far worse than is reflected in our Model.
I remain
confident in the Fair Values generated by our Valuation Model; hence, stocks
are overvalued. Of course, there is some
likelihood that they can get even more overvalued if the large number of
underperforming money managers choose to chase potential higher returns through
year end.
This doesn’t
mean that stocks are a value; it means that catching up is an economic
necessity for those trailing money managers.
It may also mean that by the end of December, a Chevy Market could be
carrying not a Cadillac, but a Mercedes price.
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