The Morning Call
The Market
Technical
The
indices (DJIA 15545, S&P 1756) were soft again yesterday. Indeed, the Dow finished below the former (?)
upper boundary of its short term trading range (14190-15550). So the question clearly is, was the time
element of our time and distance discipline off by two days and/or is the DJIA
repeating the pattern of the prior two occasions that it penetrated 15550 and
subsequently sold off? It is too soon to
know; but it also is certainly too soon to be making any big bets on another
leg up. For the moment, I am leaving the
Dow’s short term trend as up (15198-20198); but that may not hold.
The S&P
closed within its short term uptrend (1700-1854). Both of the Averages are in
intermediate term uptrends (15198-20198, 1617-2199) and long term uptrends
(5015-17000, 728-1850).
Volume rose; but
breadth remained poor. The flow of funds
indicator isn’t even close to confirming the Averages’ recent all time
highs. The VIX was up fractionally,
staying within its short term trading range and its intermediate term
downtrend.
The long
Treasury was up but still traded within its short term trading range and its
intermediate term downtrend. It also
continues to build a reverse head and shoulders.
GLD fell 1.5% although
it remained within its very short term uptrend.
Unfortunately, it is also trading within short term and intermediate
term downtrends.
Bottom
line: in light of yesterday’s pin
action, the big question is, did the Dow just make a quadruple top (trading
back below 15550 for the third time) or is the Market setting up for a bear
trap? I don’t know but as I said above,
I don’t want money riding on the answer.
Patience.
My focus remains
on our Sell Discipline: if one of our stocks trades into its Sell
Half Range
Market record in
best six months (November to April) following a positive worse six months (May
to October) (short):
History
says buy (short):
However,
consider this and be careful (short):
Fundamental
Headlines
Two
US economic
releases yesterday: weekly jobless claims fell slightly less than anticipated;
but we got a blow out number in the Chicago PMI . The latter drew most of the attention. In our new QEInfinity world where good news is
bad news (Fed tapers sooner), this report added to investor concerns raised by
the more economically optimistic tone of Wednesday’s FOMC statement (meaning
tapering sooner rather than later). Making matters even worse (assuming that
you are betting on QEInfinity), the Chinese central bank executed another
monetary tightening move. These factors
took stocks down initially. Prices then
rallied mid day only to plunge once again on reports of an Israeli attack on Syria .
***over
night Chinese PMI came in above expectations
A
couple of comments:
(1)
not to beat a dead horse, but I have been emphasizing
of late that there are multiple points of origin for the transition from easy
to tight money; and the Market to deal with at least two yesterday [the Fed, China ].
(2)
there was another piece of international economic news
yesterday and that was German retail sales which were awful. As you know, an improving European economy of
late has been a buttress to our EU ‘muddle through’ scenario. Last week we got some disappointing
news; and now this. It is not going to change our forecast but
another week or two of such data and the yellow light will again be flashing.
(3)
except for the totally inept handling of Middle East
diplomacy by the White House [curtsying to Iran and poking the Saudi’s in the
eye], the ‘blow up in the Middle East’ risk factor has been relatively benign
of late. As you know, one of the two
specific risks about which I worry is Israel
taking matters into their own hands.
Yesterday’s bombing took place near a Russian naval base and was
intended to destroy Russian missiles intended for Hezbollah. I await the Russian response.
Bottom
line: I remain confident in the Fair
Values generated by our Valuation Model---meaning that stocks are overvalued. And I think that the end of the current up
Market will most likely come from an unraveling of the Fed’s unsuccessful,
dangerously experimental monetary policy.
That risk was front and center yesterday; though to be clear, I am not
saying that the Market is peaking.
Indeed,
I have been suggesting that based on the technicals that another up leg may be
in the cards---although, as I noted above, that notion also took a lick
yesterday.
Given
yesterday’s pin action, I would put any trading moves on hold until the
technical pattern is clear.
As an investor,
I would be sure that (1) I had cash reserves, (2) I took advantage of the gift
being given me [i.e. high prices] to sell anything that gives me pause and (3)
our Portfolios continued to follow their Sell Discipline.
Three
reasons Buffett isn’t buying (short):
The
latest from Bill Gross (medium and today’s must read):
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