The Morning Call
The Market
Technical
The
indices (DJIA 16373, S&P 1838) bounced nicely yesterday, keeping them within
major uptrends across all timeframes: short term (15761-20761, 1783-1936),
intermediate term (15761-20761, 1682-2263) and long term (5050-17400,
728-1900).
Volume
fell; breadth improved. The VIX got
whacked, taking it back down to near the lower boundary of its short term
trading range---a breach of which would be a plus for stocks. It remains within an intermediate term
downtrend.
The
long Treasury fell, but not enough to prevent the invalidation of that
developing head and shoulders formation.
That is a positive for bond prices.
It remains in an intermediate term downtrend.
GLD
was down but finished above the upper boundary of very short term
downtrend. The bad news is that it
remains firmly within both a short term and intermediate term downtrend.
Bottom
line: the schizophrenia label is getting
more appropriate following yesterday’s pin action. This may cause some heartburn for investors
but doesn’t mean a decline is eminent.
Indeed, as I keep emphasizing until there is a sustained challenge
mounted to the major uptrends, the only assumption that is workable is that
stocks are going higher. As you know, my
current target is the upper boundaries of the Averages long term uptrends
(17400/1900).
However, if one
of our stocks trades into its Sell Half Range, our Portfolios will act
accordingly.
Fundamental
Headlines
Retail
sales data was front and center yesterday.
While the weekly numbers were mixed, December sales came in ahead of
expectations---though not without some serious downward revisions to the
November stats. Year over year, retail
sales appeared to be roughly in line with most of 2013; which is to say: up but nothing spectacular. Frankly, following the lousy Christmas season
weather plus the current extremely erratic reports from retailers, I find the
data as a whole really inconsistent and therefore a bit puzzling. That, of course, shouldn’t be confused with
investor attitudes as a whole. They got
quite jiggy with the numbers and remained that way throughout the day.
More
on those retail sales figures (short):
And
their antecedent---disposable income (short):
Overseas,
Japan reported the worse current account deficit ever---a testament to the
ineffectiveness of competitive devaluations.
On a more positive note, EU industrial production soared 1.8%---clearly
helping along our ‘muddle through’ scenario.
Last
but not least, the senate was unable to agree on the provisions to extend
unemployment benefits. Score one for the
good guys. Unfortunately, this issue is
not dead. Obama in His first cabinet
meeting of the year vowed to keep pushing.
In addition, our
elected representatives have come up with an omnibus spending bill for the 2014
budget. If passed, it would be the first
in five years. I suppose that is a step
forward; but one in terms of exemplifying a turnaround in an otherwise harmful policy,
I would rank right up there with tapering for pussies. Naturally, there are no provisions regarding
the bailout of Obamacare (the odds of which grow daily and the magnitude of
which is anybody’s guess) or any of the other measures Obama threatened yesterday
in His cabinet meeting.
I
will say in the interest of fairness that the fact that the congress could pass
a budget is a plus. Further, as was
reported earlier this week, the budget deficit has been shrinking largely as a
result of the now dead sequester and the growth of tax revenues resulting from
an improving economy. So at this point
in time, the decline in the deficit to GDP ratio keeps the risk of fiscal
irresponsibility manageable.
That said, the
decline is the deficit has been more a function of the natural growth of our
economy and the expertize of our business community in turning a (taxable) profit.
So while the fiscal irresponsibility risk may not be at the top of my list
right now, until our ruling class loses the attitude that government is the
answer to all problems, it is not going away.
Bottom
line: while a little confusing of late,
the economic data still portrays a US growth rate that is sluggish, below its
historic mean but holding firm. That,
however, is not the same thing as saying that corporate profits are being
fairly valued or that there are only minor risks that could undo much of the
progress that has been made since 2008.
In fact, our
Valuation Model is estimating that stocks are extremely overvalued which won’t
be cured by anything other than time or a correction. Either way, 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.
The
latest from Lance Roberts (medium):
Thoughts
on diversification (medium):
The
latest from Marc Faber (10 minute video):
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