The Morning Call
This is the weekend of my annual
college frat pledge class reunion. I
leave shortly after publication. So no
Closing Bell this week.
The Market
Technical
The
indices (DJIA 15876, S&P 1790) hit all time highs again yesterday,
remaining within uptrends across all time frames: short term (15290-20290,
1716-1870), intermediate term (15290-20290, 1626-2208) and long term
(5015-17000, 728-1850).
Volume
improved; breadth was mixed. The VIX was
down, drawing even closer to the lower boundary of its short term trading range
(not really surprising given the pin action) and is well within its
intermediate term downtrend.
I
checked again on our internal indicator.
In a Universe of 170 stocks, 38 are hitting new highs, 88 are not and 24
are too close to call. This is a much
more negative reading than I would have guessed. Even if I assume all of the ‘too close to
call’ stocks will turn positive, the negative trends still outweigh the
positives. It clearly points to deteriorating
breadth.
The
long Treasury was up again, finishing within its short term trading range and
intermediate term downtrend.
GLD
popped, closing back above the lower boundary of the very short term uptrend,
thereby negating the break. It also
finished right on the point of pennant formation. Technical lore says that whatever direction
GLD moves initially will prove a longer term trend.
Bottom
line: both indices are making new all
time highs, despite numerous signs that breadth is deteriorating---including a
disastrous reading from our internal indicator.
The latter was a
big surprise to me and is making me re-think my belief that the Averages will
take a run at the upper boundaries of their long term uptrends
(17000/1850). It prompts me to back off
my very tentative suggestion that traders could play a potential leg up.
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
Fundamental
Headlines
Yesterday’s
US economic data was neutral: weekly jobless claims fell less than expected
while third quarter nonfarm productivity rose less than anticipated. In other words, the numbers were headed in
the direction we want; just not as fast as we hoped.
Global
economic stats were terrible across the board: Japanese, German, French,
Italian and EU third quarter GDP reports
registered negative or disappointing growth.
In a world where ‘bad news is good news’ this must have been music the
investor ears.
Those datapoints
were followed by Yellen’s confirmation hearing in which she sounded as dovish
as her written remarks released Wednesday night---which only helped to keep
investor sentiment jacked up.
The
diminishing returns of QE (medium):
The
earnings season report card (short):
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.
The
problem with too much bubble talk (medium):
The
latest from Citi (long but worth the read):
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