The Morning Call
2/25/14
The Market
Technical
The
indices (DJIA 16207, S&P 1847) had a volatile session, ending up but off
their highs. They remained within their
short term trading ranges (15330-16601, 1746-1858), though the S&P
challenged its upper boundary and failed
The Dow closed within its intermediate term trading range (14696-16601) and
closed above its 50 day moving average, while the S&P is in an intermediate
term uptrend (1718-2498) and above its 50 day moving average. Both are in long term uptrends (5050-17400, 736-1910).
Volume
was huge---a magnitude that I would have expected at last Friday’s option
expiration; breadth was up though quite meekly given the size of the day’s
price gains. The VIX declined, finishing
with its short term trading range and intermediate term downtrend and right on
its 50 day moving average.
The
long Treasury was down, closing within a short term trading range and its
intermediate term downtrend. The head
and shoulders formation is still in play but time is working against it. If the bond trades up or remains flat for
another couple of days, the pattern will be invalidated.
GLD
rose again, staying well above the lower boundary of its very short term
uptrend. However, it is also in both short
and intermediate term downtrends. Our
Portfolios remain on the sidelines.
Bottom line: yesterday could be interpreted two ways: the
bulls could take heart that stocks were up on good volume in the face of lousy
news; the bears could argue that the S&P’s high volume attack on its
all-time and subsequent failure smacks of a blow off top. There is no way that I am going to talk my
book here (taking the bearish case) because I have been wrong on this Market
for the last year. Nonetheless, the
alternatives are there.
The important
thing is what actually happens from here.
If yesterday was a prelude to a more furious/successful assault on 1858,
then the next stop is likely the upper boundaries of the Averages long term
uptrends. If it was a triple top, then
the lower boundary of the S&P’s intermediate term uptrend becomes the
focus.
Meanwhile, we
have a Market in a trading range; so there is really not much to do save using
any price strength that pushes one of our stocks into its Sell Half Range and to
act accordingly.
Fundamental
Headlines
The
news flow yesterday probably couldn’t have been worse. In the US, the January Chicago Fed’s National
Activity Index was negative and December’s reading was revised down, the
February Market flash PMI was well below expectations and the Dallas Fed
manufacturing index was also below estimates and barely on the plus side.
Overseas,
now that the Olympics are over, Russia is flexing its muscles in Ukraine; and
Venezuela keeps going from bad to worse.
None
of this bothered investors as the whole bad news is good news mindset dominates
Market psychology. At this rate, if
government announced that we were in a depression tomorrow, the S&P would spike
open at 2000. I say that partially in
jest but in truth it is the logical extreme of current behavior.
Bottom
line: Sunday I watched the final round of the Accenture World match play
tournament. At one point, Jason Day (one of the players) just
laughed (in disbelief) at the last of what was a series of the incredible shots
made by his opponent out of seemingly impossible lies. Indeed, the entire golf world marveled at these
unbelievable shots.
Right now, I feel
like Jason Day. I watch the financial
networks all day long and wonder at the nonsense I hear about the economy and
valuations---and yet at this moment in time, they are calling the shots. When it ends---I have no idea. But it will end and a lot of investors are
not apt to be happy.
Incidentally,
Jason Day won the tournament.
Another must see
blast from Rick Santelli:
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.
Thoughts
on market valuation (medium):
Stocks
and the economy (short):
http://advisorperspectives.com/dshort/guest/Michael-Lombardi-140225-Stocks-and-Economy.php
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