The Morning Call
The Market
Technical
Day
five of the January effect and the indices (DJIA 16462, S&P 1837) were down
on the day as well as for the first five days.
Nonetheless, they remain within major uptrends across all timeframes: short
term (15728-20728, 1779-1932), intermediate term (15728-20728, 1676-2257) and
long term (5050-17400, 728-1900).
Volume
was up; breadth deteriorated. The VIX
declined (unusual for a down price day), finishing near the lower boundary of
its short term trading range. It is also
within an intermediate term downtrend.
The
long Treasury fell, continuing within a short term trading range, an
intermediate term downtrend and the construction of a head and shoulders
formation.
GLD
inched lower for a second day, but closed above the upper boundary of the very
short term downtrend. However, it is
also within both short and intermediate term downtrends. Without more strength to the upside, our
Portfolios will remain on the sidelines.
Bottom
line: the timeframe for the January
effect is over and the results are negative.
I have quoted and linked to statistical studies that suggest that this can
be an ill omen for 2014 pin action.
More on the
January effect (short):
http://blog.stocktradersalmanac.com/post/SPX-First-Five-Days-Down-But-Spotty-Record-in-Midterm-Years
On the other
hand, I also noted that most of the negative technical axioms of the Market
have not delivered the specified results over the last year. Plus there is some statistical significance
to studies showing that performance in years following a 25% up years is
positive.
So there are
technical cross currents that need to be accounted for over the near term. Perhaps the most important factor at this
moment is that the Averages aren’t even close to challenging the lower
boundaries of any of the major uptrends.
Until that occurs, the January effect is meaningless and I have to
assume that sooner or later the upper boundaries of the indices long term
uptrends (17400, 1900) remain a viable target.
Nonetheless, I
will continue to use any advance as an opportunity for our Portfolios to take
advantage of our Sell Price Discipline.
A
study on the probability of a bear market commencing anytime soon (medium):
Update
on sentiment (short):
Fundamental
Headlines
The
Fed also released the minutes of its last FOMC meeting. They contained a long on-the-one-hand,
on-the-other-hand discussion of Fed tapering; and concluded with the message
delivered by Bernanke at the post meeting news conference---the Fed will
proceed cautiously in implementing the ‘taper’.
In other words, nothing new (you will find a link to the relevant
excerpts below).
Overseas
the EU unemployment number was unchanged but near a record high while the
German trade surplus grew---not a great thing when it comes to intra-EU
politics.
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 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.
Investor
returns (short):
Goldman’s
list of risks for 2014 (long but a must read):
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