The Morning Call
The Market
Technical
The
indices (DJIA 16442, S&P 1838) turned in a mixed day (Dow down, S&P
up), closing within major uptrends across all timeframes: short term
(15728-20728, 1781-1934), intermediate term (15728-20728, 1678-2259) and long
term (5050-17400, 728-1900).
Volume
fell; breadth was mixed. The VIX rose
fractionally, finishing within its short term trading range and intermediate
term downtrend.
The
long Treasury was up, closing within its short term trading range and
intermediate term downtrend. It
continues to develop a head and shoulders formation, though the right shoulder
is getting a bit extended, raising the possibility that this indicator could
becoming invalid.
GLD
increased, remaining above the upper boundary of a very short term
downtrend---but just barely. That
doesn’t get me jiggy to own GLD especially since it is solidly within both a
short and intermediate term downtrend.
Bottom
line: I thought there was a chance that
stocks might be off yesterday based on a negative first reading of the January
effect especially after the upbeat jobless claims report (good news is bad
news)---and there was some initial sell off.
But as the day wore on, stocks managed to recoup much of their initial
losses. That suggests that not too many
investors are worried about the consequences of a negative January effect; and
as I noted yesterday, there really isn’t much reason to until the Averages
start breaking support levels.
Until that
happens, the guiding assumption has to be that the indices will continue to
advance toward the upper boundaries of the long term uptrends (17400/1900). That is not a lot of upside from current
levels, so I will continue to use any advance as an opportunity for our
Portfolios to take advantage of our Sell Price Discipline.
Thoughts
from Todd Harrison (medium):
More
on the presidential cycle (medium):
A
bull’s outlook (short):
Fundamental
Headlines
Mixed
data again yesterday. Weekly jobless
claims were down more than expected, giving us the second strong employment
number this week. That is great for the
economy; but it still points toward the potential of tapering faster or bigger
than the Markets may want. ***Ooops,
nonfarm payrolls rose a paltry 74,000 in December versus consensus of up
200,000. Weather gets the blame.
December retail
sales were decent but largely a function of heavy promotions and a large
component of nondiscretionary goods.
Further, a number of retailers guided earnings estimates for 2014 lower. So I would rate this datapoint as mixed.
Overseas,
Chinese CPI was below estimates---a plus for
those concerned about the risk of a tightening monetary policy. The ECB left interest rates unchanged, with
Draghi promising easy money for as far as the eye can see. Finally, Japanese consumer sentiment fell for
the second month in a row, not good news for Mr. Abe and perhaps his QEInfinity
on steroids monetary policy.
It
was the jobless claims number that weighed most heavily on investor sentiment;
so today’s December nonfarm payroll report will likely be a Market moving
datapoint. So far, good employment news
has been bad Market news.
Bottom
line: the economy continues to progress
in line with our forecast. Fiscal policy
remains a mess, but that is in our Models.
Monetary policy is worse; and it is here that the risk to the Market and
perhaps the economy lies.
The Market risk
is largely a function of extreme overvaluation and that 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 Bill Gross (medium):
The
latest from Barry Ritholtz (3 minute video):
The
latest from Lance Roberts (medium):
Update
on Buffett’s favorite valuation metric (short):
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