The Morning Call
2/27/14
The Market
Technical
Yesterday
the indices (DJIA 16198, S&P 1845) were quiet and fractionally up, closing
within their short term trading ranges (15330-16601, 1746-1858), though the
S&P challenged its upper boundary for the third day in a row 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 (1721-2501) and above its 50 day
moving average. Both are in long term
uptrends (5050-17400, 736-1910).
Volume
was flat; breadth recovered slightly.
The VIX was up 5%---a little unusual for a slow day. It finished within its short term trading
range and its intermediate term downtrend.
The
long Treasury rose, staying within a short term trading range and an
intermediate term downtrend. With this
positive close, the head and shoulders formation has been negated.
GLD
fell noticeably---one of the few times in the current very short term
uptrend. Perhaps this is the beginning
of a test of this trend; something that I have been waiting for. It remains in a short and intermediate term
downtrend and above its 50 day moving average.
Bottom
line: the S&P made a third challenge
on its all-time high in as many days and failed again. Nevertheless, the subsequent sell off was not
indicative of major failure; indeed, given the magnitude of the Markets
overbought condition, it is surprising that prices haven’t backed off more than
they have. In short, the bulls are alive
and well.
So I remain on
watch. If the past three days are 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 they are forming 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.
The
latest from Todd Harrison (short):
The
S&P equal versus cap weighted performance (short):
Fundamental
Headlines
We
got two housing related indicators yesterday: weekly mortgage and purchase
applications were down while January new home sales were surprisingly
strong. Bear in mind that for seasonal
reasons January is not a good month to judge the housing market and that new
home sales are roughly one tenth of existing home sales. However, good news is still good news
whatever its form; so I don’t want to discount this number too much.
Overseas,
there was a single data point worth reporting---French unemployment hit an all-time
high.
In
politics, (1) the risk of additional violence in Ukraine is growing and (2) in
the US, the house is working on a tax reform bill which has already been
declared DOA by much of the ruling class and the media.
Bottom line: I
am not sure what to make of investor response to yesterday’s news flow. The biggest item was the very positive January
new home sales. Initially, stocks
rallied, suggesting that the goldilocks scenario was in play (i.e. the perfect
outcome, balancing economic progress, the impact of weather and Fed
policy). However, the uptrend didn’t
last long and, most important, the S&P couldn’t hold above its all-time
high which at least raises questions about the depth of confidence in the
goldilocks scenario. On the other hand,
as I said above, the Market is extremely overbought, so some backing and
filling should be expected. In addition,
Yellen is testifying before the senate today and investors may have wanted to
be cautious ahead of that event.
All that said, equity
valuations are near historic highs on numerous measures irrespective of even
the most favorable outcome of economic growth, the impact of weather and Fed
policy.
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.
Bear
in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and
their cash position is a function of individual stocks either hitting their
Sell Half Prices or their underlying company failing to meet the requisite
minimum financial criteria needed for inclusion in our Universe.
James
Montier on the Case Shiller CAPE ratio (short):
What
the Fed got wrong (short):
Another
great investment piece from Lance Roberts (medium and today’s must read):
Global
earnings revisions remain negative (short):
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