The Morning Call
The Market
Technical
The
indices (DJIA 16008, S&P 1800) took a breather yesterday, though they
remained within uptrends across all time frames: short term (15414-20414,
1732-1856), intermediate term (15414-20414, 1646-2227) and long term
(5015-17000, 728-1850).
Volume
rose, breadth was terrible. The VIX rose
but continues to meander within a short term trading range. It finished within an intermediate term
downtrend.
The
long Treasury was off, closing within a short term trading range and an
intermediate term downtrend. It is still
building a head and shoulders formation.
GLD
was whacked by 2%. It is within short
and intermediate term downtrends and is approaching the lower boundary of its
long term trading range. A breach of
that level would be very negative for gold.
Bottom
line: I thought that a break by the
Averages above the psychologically important 16000/1800 levels would be a
precursor to another strong leg up---especially given that the Holidays are
historically one of the strongest periods of Market performance. After five days of a halting advance,
yesterday saw the indices back at 16000/1800 and threatening to fall back
below. While there continues to be a
number of concerning divergences, I don’t think this pin action a necessarily
ominous development; but it does suggest that the bulls are a bit tired, at
least on a very short term basis.
It still seems
reasonable to assume that there is at least an even chance of another leg up,
and the most likely targets, in my opinion, are the upper boundaries of the
Averages long term uptrends (17400/1900).
Of course, if that is the case and the downside is simply Fair Value
(11575/1436), then the risk reward from current levels is not all that
attractive.
As a longer term
investor, I think that the aforementioned risk/reward ratio is an invitation to
lose money. I would, however, 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.
In the meantime,
if one of our stocks trades into its Sell
Half Range
More
on sentiment (short):
Odds
of the S&P winning streak extending to nine weeks (short):
Fundamental
Headlines
We
received lots of economic data yesterday.
In the US, the November Markit PMI
and the November ISM manufacturing index were both stronger than anticipated;
and in a dual month report, September construction spending was weaker than
forecast while the October figure was well ahead of estimates. On the negative side, Thanksgiving weekend
sales fell short of expectations.
***over
night, Cyber Monday sales appear to have made up for the short fall.
By
far the most important number was the ISM manufacturing index; so in one sense,
we have to judge the sum total of the stats as a net positive.
Overseas,
the data was positive with the Chinese PMI
well over expectations and the EU PMI
slightly ahead of forecast.
***over
night Spanish unemployment declined.
With
the early news flow to the plus side, stocks were up in morning trading. However, later in the day, prices got a hitch
in their getty up. There was nothing
obvious to explain the sell off unless, in a good news is bad news world, one
thinks that it took investors half a day to figure that out. Personally, I don’t; so I have no good reason
for the sell off.
Bottom line: as
much as I enjoyed the Thanksgiving holiday, I am not any more positive on
equity valuations. No matter how hard I
challenge my own assumptions, I can’t come up with a logical scenario that
values the S&P at 1800. Perhaps more
important, our Valuation Model has placed many of our holdings at or above
their Sell Half
Range
So as an
investor not a trader, my long term strategy calls for me to sit on my hands
until valuations return to normalcy.
The
Fed now owns one third of the bond market (short):
Emergency
aid, unemployment and Fed policy (medium):
The
latest from Bill Gross (medium and a must read):
Update
on valuation:
Subscriber Alert
During
a recent valuation analysis, Atrion (ATRI ---$279)
and Altera (ALTR ---$32) both failed to meet
the necessary quality standards to qualify for inclusion in the Aggressive
Growth Universe. As a result, the
Aggressive Growth Portfolio will Sell its positions in ATRI
and ALTR at the open this morning.
The
stock price of ITC Corp (ITC ---$91)
has traded below the upper boundary of its Buy
Value Range ITC
is being Added to the Dividend Growth Buy List.
The Dividend Growth Portfolio does not own ITC
and will not Buy shares at this time.
Investing for Survival
Year
end tax tips (medium):
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