The Morning Call
The Market
Technical
The
indices (DJIA 15875, S&P 1781) couldn’t muster any follow through from
Monday’s big up day. That means that
both now have made two lower highs after selling off from the late November all
time highs. That doesn’t necessarily
portend future negative pin action; but a very short term downtrend has now
been established and we just need to watch it.
Nonetheless,
the Averages closed within uptrends along all major timeframes: short term
(15554-20554, 1755-1909), intermediate term (15554-20554, 1657-2238) and long
term (5050-17400, 728-1900)
Volume
was flat; breadth deteriorated. The VIX
rose but continues to meander within a short term trading range. It is also in an intermediate term downtrend.
The
long Treasury was up but did nothing to challenge its short term trading range,
its intermediate term downtrend or the construction of a head and shoulders
formation.
GLD
fell and remains the sickest puppy on the block. It closed within its short and
intermediate term downtrends. The only
positive is that it hasn’t broken below the lower boundary of its long term
trading range.
Bottom
line: the lack of follow through in
yesterday’s pin action was surprising to me; in that stocks through the
preponderance of this up Market have tended bounce hard off of oversold
conditions. There is now a very short
term downtrend in place and it should be respected until proven otherwise.
That said, I
still think that there is a better than even chance of the indices challenging
the 17400/1900 level---although I think that only the nimblest of traders
should attempt to play the move. For my
part, I will continue to use any advance as an opportunity for our Portfolios
to take advantage of our Sell Price Discipline.
The
technical significance of January (short):
Fundamental
Headlines
The
trend of better US
economic news continued yesterday: CPI was
flat, though ex food and energy, it was a bit higher than anticipated; weekly
retail sales were good and the October budget deficit was once again smaller
than expected.
Overseas,
German investor confidence hit a seven year high and the EU CPI
was down month over month.
So
our economic forecast (slow, below average but steady growth) remains on
track. However, just to be clear, in my
opinion, there is nothing in the numbers to suggest that growth is about to
accelerate.
I
am not sure how much attention investors paid to these headlines, as the FOMC
meeting and today’s release of its updated policy were center stage. If you were watching the news channels, you
know that there was an endless parade of pundits opining on what the Fed will
or won’t do today.
We
will know soon enough and then we will also know how Markets react.
Bottom line:
speculating on what will happen this afternoon is a waste of both your and my
time. So I leave with the thought that
whatever the Fed does, it won’t change the fact that stocks are considerably
overvalued one iota---although it certainly could change the Markets’
perception of valuation.
It also doesn’t
change my call: I can’t emphasize strongly enough that I
believe that the key investment strategy today is to take advantage of the
current high prices to sell any stock that has been a disappointment or no
longer fits your investment criteria and to trim the holding of any stock that
has doubled or more in price.
More
on valuation (medium):
And
(short):
Fear
and loathing in muni land (medium and a must read if you own them):
Bubble
logic and Fed tapering (medium):
More
from Jim Grant (2 minute video):
The
latest from Marc Faber (8 minute video):
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