The Morning Call
The Market
Technical
The
indices (DJIA 15739, SS&P 1775) fell again yesterday, but remained within
uptrends along all timeframes: short term (15509-20509, 1746-1900),
intermediate term (15509-20509, 1653-2234) and long term (5050-17400,
728-1900).
Volume
declined slightly; breadth was mixed, though stocks are deep in oversold
territory. The VIX rose but less than I
expected, finishing within its short term trading range and intermediate term
downtrend.
The
long Treasury was off, but continued to trade within its short term trading
range and intermediate term
downtrend. It is still building a head
and shoulders formation.
GLD
dropped 2%. The last two days trading
have negated the more positive pin action earlier in the week. The chart returns to the ‘sick’ status. GLD closed within its short and intermediate
term downtrends.
Bottom
line: fear of tapering seemed to
dominate investor psychology yesterday, despite a lousy weekly jobless claims
number. This is hardly the stuff that
Santa Claus rallies are made of; but we have another eight trading days for the
speculative juices to start flowing again.
So the despite the somewhat schizophrenic trading of the last two weeks,
I think that, given the very positive seasonal bias plus the fact that the
Averages remain in multiple time related uptrends, the assumption has to be for
a higher Market until it is proven otherwise.
17400/1900
remain my best guess at the potential upside from here. Given that it is somewhat limited, I see no
reasons to chase stocks from here and, in fact, I will continue to use the
current advance as an opportunity for our Portfolios to take advantage of our
Sell Price Discipline.
Charts
of the day (short):
Small
caps breaking down? (short):
Fundamental
Headlines
There
were a couple of very contradictory US
stats yesterday: weekly jobless claims soared (bad news is good news?) while
November retail sales were much stronger than anticipated and October business
sales and inventories were up more than forecast (good news is bad news?). Overseas, EU industrial production fell 1.1%
(bad news is good news?).
Well,
the tie went to the good news is bad news datapoints keeping the fear of a
December Fed tapering front and center as investors pushed stock prices
lower. As you know, I don’t think that
the Fed will start tapering next week which argues for a very short lived
decline. However, if it does, the top
may be in. If not, then the chances are
good for an assault on 17400/1900.
Bottom line:
next week’s FOMC meeting now appears to be in most investors’ crosshairs. The latest sentiment is favoring a start to
tapering; but that can change with an unexpected data point or statement from a
Fed member. Nevertheless, the Fed
meeting will likely dominate the pain action until next Wednesday afternoon.
Of course, my
opinion is that (1) the sooner the Fed tapers, the better and (2) irrespective
of when it tapers, the economic and Market pain could be extreme. That said, nobody really knows how the
consequences will work out because the Fed has never been this levered. I suppose the process could be painless but
history suggests that it won’t.
When viewing the
current economy in the light of the above uncertainty, stocks are considerably
overvalued. Therefore, my task is to be
sure that our Portfolios take profits when our Sell Half Discipline becomes
operative and hold on to their cash for dear life.
More
on valuation (short):
Investing for Survival
Another
gem from the IMF (medium):
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