The Morning Call
The Market
Technical
The
indices (DJIA 16257, S&P 1819) took a drubbing yesterday, though they
remained within major uptrends across all timeframes: short term (15748-20748,
1783-1936), intermediate term (15748-20748, 1682-2263) and long term
(5050-17400, 728-1900).
Volume
rose; breadth got crushed. The VIX
bounced big time off the lower boundary of its short term trading
range---removing, at least for the moment, a challenge which would likely be a
plus for stocks.
The
long Treasury continued to climb on improving breadth. If it remains near current levels at the
close today, the developing head and shoulders formation will be negated---a
positive for bond prices.
GLD
also traded up also on better breadth, leaving it well above the upper boundary
of the very short term downtrend. This
is a good sign, but not good enough to warrant action.
Bottom
line: despite lousy pin action, all
trends of both indices are up.
Nevertheless, the see saw movement of late last week was replaced with a
very definitive move down, brought by some negative comments from Goldman and
the Atlanta Fed chief (see below). The
bond and gold markets continued to advance in spite of stocks performance.
In last
weekend’s Closing Bell, I noted that the markets’ performance suggested a bit
of schizophrenia. Yesterday’s action
reinforces that notion. I don’t think
that necessarily means a major correction.
It could be nothing more than stocks working off a very overbought
condition. Certainly, until there is
some challenge mounted to the major uptrends, one has to assume 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.
Arguments
against the secular bull thesis (medium):
First
down Friday, down Monday of 2014 (short):
Fundamental
Headlines
One
upbeat economic data point yesterday was the Treasury’s report that in December
it ran a surplus. Yes, it is a positive;
but to mean anything, the deficit has to shrink and then stay low. We don’t need to run surpluses, we just need
GDP to catch up with our far too high national debt. That said, with the current group of clowns
now overseeing fiscal policy, I wouldn’t bet any money on it.
What
got the Market off on the wrong foot was a report from Goldman stating that
stocks were generously valued (I linked to the report in yesterday’s Morning
Call; so if you missed it, you can go back and read it). That was followed by a statement from the
Atlanta Fed chief that he had growing confidence in the economy and continued
to support tapering---and it was all downhill from there.
Both
repeat my concern about the Market (1) the Goldman report because I firmly
believe that stocks are overvalued and (2) the increased likelihood of tapering
because I think that tapering will probably have more impact on the security
prices than it does on the economy,
All
that said, as I noted in the Technical section, I am assuming nothing about any
kind of correction except that it will come sooner or later and the later it
is, the worse it will be.
Bottom
line: at least I am getting some company
on valuation from one of the big dogs.
That, of course, doesn’t mean that stocks are on their way to Fair
Value. It does mean that a gradually
improving economy notwithstanding, the Market is (as calculated by our Model)
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.
When
is a bubble a bubble? (medium):
Three
charts (short):
The
latest from John Hussman (medium):
Investing for Survival
Lessons
from the old timers (medium):
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