The Morning Call
The Market
Technical
The
run of down days in the indices (DJIA 15821, S&P 1785) continues, although
they still closed within uptrends across all time frames: short term
(15451-20451, 1736-1860), intermediate term (15451-20451, 1648-2229) and long
term (5015-17000, 728-1850).
Volume
rose---as it has on each of the last five down days; breadth was rotten. The VIX was up, but is well within its short
term trading range and its intermediate term downtrend.
This
from the Sentiment Trader:
The latest
comprehensive data on mutual fund assets show that investors have continued to
shovel money into equities. traded funds, an increase of $360 billion in
October alone. Safe money market funds, however, suffered outflows of about $11
billion, bringing total assets down to $2.4 trillion. That means the ratio of
"risky" assets to "safe" assets has ballooned to 3.7-to-1,
a new all-time high dating back 30 years. The ratio follows the direction of
the overall stock market extremely closely. So a new record high in many
stock indexes should generate a new high in this ratio as well.
But let's look at how
stocks performed versus how the ratio changed during the last three major
market swings. Leading up to the 2000 market peak, the S&P 500 rose 242%
during the prior six years. During that time, the ratio of assets in
equities versus money market funds rose only 83%. The next big swing, including
five years from 2002 through 2007, saw the S&P rise 90%, but the fund ratio
rose significantly more, nearly 150%. Look at the latest swing. The
S&P has risen nearly 140% over four and a half years, but the ratio of
assets has expanded by 236%. The suggestion from this is that investors
have become more aggressive in allocating capital to the stock market, per
percentage point of increase, and in a quicker fashion than they had
before."
The
long Treasury had a rough day as did most of sectors of the bond market. It closed within its short term trading range
and intermediate term downtrend; it continues to build a head and shoulders
formation---not a plus of bond prices.
GLD
was down, finishing within short and intermediate term downtrends and closer to
the lower boundary of its long term trading range. As I noted yesterday, to re-enter this trade,
GLD needs to bounce hard and start taking out resistance levels.
Bottom line: even though the Averages have stretched their
losing streak to five days and done so on rising volume, the price action
itself isn’t all that alarming. And when
you couple in the fact that we are in what is historically the best calendar
period of the year, I still think another leg up is better than even odds.
As you know, my
most likely upside targets are the upper boundaries of the Averages long term
uptrends (17400/1900)---which isn’t all that much when you consider the
downside (Fair Value: 11600/1440).
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
from Lance Roberts (medium):
The
latest from the Stock Traders Almanac (short):
Fundamental
Headlines
Yesterday’s
US economic news was largely upbeat: weekly jobless claims were down more than
forecasts, revised third quarter GDP showed
better growth than expected, third quarter corporate profits were up more than
anticipated and October factory fell less than estimates. Overseas, the ECB left interest rates
unchanged. With all that good news, it shouldn’t be surprising that, in
our current upside down world, stocks would fall.
***over
night, German factory orders were down.
Also not
surprising, the bond markets took it in the snoot. I
opined above that I thought that the stock market still had a better than even
shot at another leg up. However, I would
add the caveat that if the bond guys start ignoring Fed propaganda and
demanding a higher risk premium, then it could be a case of 16000/1800---we
hardly knew you. I have repeatedly
warned of this risk; and to be clear, it may not be happening now. But if is it..........well, you know.
***over night
the Japanese bond market got hammered.
Remember that low yen rates have played a key role in the ‘carry
trade’. If this trade starts reversing
that is going to put pressure on every global yield related asset.
Bottom line:
stocks are considerably overvalued. But
as I have noted, they are likely to remain that way until either the Markets
stop believing in QE or we get some exogenous event that hits investors in the
face.
Whether that is
starting to occur now or doesn’t happen for another six months, doesn’t matter
to me as a long term investor. My immediate
task is to be sure that our Portfolios take profits when our Sell Half
Discipline becomes operative.
Were I a trader,
I might Hold on to those Sell Half candidates a little longer but I would have
tight and irrevocable Stops. I would
also be looking for avenues to profit on the downside when, as and if this
Market rolls over---like the all short ETF (HDGE), the VIX (VXX) and gold (GLD)
assuming its chart can repair itself in time.
What
America needs
(hint: not more QE):
The
uneven results of QE (medium):
The
latest from Kyle Bass (medium):
No
silver bullets (medium/long):
Investing for Survival
Simple
is best (medium):
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