The Morning Call
2/20/14
The Market
Technical
The
indices (DJIA 16040, S&P 1828) declined off of an overbought position
yesterday, remaining within their short term trading ranges (15330-16601, 1706-1858). The Dow closed within its intermediate term
trading range (14696-16601) and once again fell below its 50 day moving
average, while the S&P is in an intermediate term uptrend (1714-2494) and
above its 50 day moving average. Both
are in long term uptrends (5050-17400, 728-1900).
Volume
fell; breadth was lousy. The VIX surged
11%+, finishing within its short term trading range and intermediate term downtrend. It bounced up off of its 50 day moving average---a
negative for stocks.
The
long Treasury fell, closing within its short term trading range and
intermediate term downtrend. With the
decline, the head and shoulders formation remains in play.
GLD
was also down, staying within a very short term uptrend but a short and
intermediate term downtrend. As you
know, I am watching for the level where GLD finds support on a decline.
Bottom line: the big technical question on yesterday’s pin
action is: what powered the Averages’ decline, a third bounce off their all-time
highs (a big negative) or simply a sell off from an overbought condition
(little significance)? The answer is likely the latter; although only
time will provide it.
Meanwhile, we
have a Market in a trading range, whose upper boundary remains a serious
resistance level; 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
lousy economic data continues to flow in both here and abroad. Overseas, the UK unemployment rate rose. In the US, mortgage and purchase applications
were down and January housing starts were terrible. On a neutral note, January PPI came in as
expected. On a confusing note, the Fed released
the minutes of its January FOMC meeting.
Two signals rattled investors, which was the prime driving force of the
day’s sell off:
(1) tapering
is still on. This represents a bit of cognitive
dissonance to investors who have been tip toeing though the tulips of late on
the notion that the new Yellen Fed would fold like a cheap umbrella on its
tapering policy if the economics numbers softened. Since the stats are somewhat more than soft,
this re-affirmation of tightening was not well received,
(2) new
forward guidance on further tightening is likely to be forthcoming in the near
future but there was no hint on what the criteria would be. That squeezed a few sphincter muscles around
Wall Street. At least stating that
tightening was still on could be measured.
But new unstated guidelines are an unknown; and we all know how
investors hate unknowns.
Bottom line: more
lousy economic numbers but no added clarity as to the extent that weather
played. No doubt that it has played a
role; but I question whether it is wise for investors to be assuming that it is
the dominant factor. That said, I have
observed that our economy has hit a number of soft patches over the last five
years with no permanent damage. So I am
not altering our forecast until we get a better read. The issue I have is how to price stocks in
view of a less certain future.
Of course, until
the release of the FOMC minutes many on Wall Street seemed to be depending on
the Fed to make sure that the future was not less certain, to wit, QE if there
was even a hint of trouble. Now that has
been drawn into question, anxiety levels seem to be headed higher---at least
they were yesterday.
Not to be
repetitious, but I have tried to be clear that whatever the economic data turns
out to be, I am not convinced Fed policy---tapering or not---will have much
impact, It hasn’t so far (except for
QEI); so I see no reason to assume it will in the future. Hence, I don’t think that investors are
worried about the economic impact of any change in Fed policy. I think that they are concerned about the
stock market impact---as well they should be.
A subject that for me has reached the stage of beating a dead horse. So I will stop there.
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.
On
economic growth
The
latest from John Hussman (medium):
Emerging
market melt upcoming? (medium):
Are
muni’s a bargain? (medium):
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