The Morning Call
The Market
Technical
The
indices (DJIA 16130, S&P 1840) turned in a quiet and mixed day (Dow down,
S&P up), remaining within their short term trading ranges (15330-16601, 1706-1858). The Dow closed within its intermediate term
trading range (14696-16601) and is sitting right on 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
rose slightly but is still anemic; breadth was negative. The VIX was up, finishing within its short
term trading range and its intermediate term downtrend and below its 50day
moving average.
The
long Treasury rose. It is still within a
short term trading range and an intermediate term downtrend. Any
further moves to the upside will invalidate
the developing head and shoulders---good news for bond holders.
GLD
kept its winning streak alive, closing within a very short term uptrend but a
short and intermediate term downtrend.
Bottom line: yesterday’s pin action was pretty
indecisive. However, after a sharp run
up into overbought territory, it is not surprising that the Market would take a
breather. I continue to believe that the
former highs (16601, 1858) pose serious resistance; so a battle royal is likely
around these levels. While stocks have a
number of volume and breadth issues, it has to date been a losers game to bet
against the bulls---and it will remain so until it doesn’t. When that happens is anyone’s guess.
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.
Five
percent declines in the S&P (short):
A
history of stock market crashes (medium):
Seasonal
patterns of midterm years (short):
http://blog.stocktradersalmanac.com/post/Seasonal-Patterns-Point-to-Mid-April-Market-Top-DIA-SPY-QQQ
Fundamental
Headlines
The
economic news both here and abroad continues to disappoint. In the US, the NY Fed manufacturing index was
well below expectations as was homebuilders’ confidence. Particularly unsettling regarding the latter
point, the worse news came from the West where the weather has been just fine. Overseas, Spanish bad loans hit a new high,
Japanese GDP was way below forecasts and German investor confidence plummeted. Clearly, none of this serves to dispel concerns
about a global economic slowdown.
The
one positive bit of news (for the bulls) is that the Japanese central bank
announced that it would quadruple down on QE, increasing both its lending
facility and the growth of the money supply.
In addition, the Chinese central bank bailed out yet another set of
wealth management trusts.
So the central
banks around the world are supplying as much liquidity as possible in an
attempt to sustain economic growth, however paltry and in spite of their notable
lack of success to date. Of course, these policies have kept investors happy. The big question is, can this go on forever
with no negative consequences?
Bottom line: still
no improvement in the data flow though I continue to acknowledge that weather
is masking the real level of economic activity.
Whether or not weather is the sole reason for the lousy numbers is
another question---which apparently very few investors are asking. They seem content in their belief that the
global central banks will be the mother’s milk of stocks.
I believe that even
if everything turns out right (1) we can’t know that before the fact and
therefore some modicum of caution is appropriate at this time and (2) equities
are overvalued on that exact scenario.
As I noted last
week, I am not arguing for a Market collapse; I am not even arguing that prices
dip below our Year End Fair Value based on our now somewhat optimist economic outlook.
I am arguing
that stocks remain very richly valued on almost any (upbeat) economic
scenario. 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.
Soros
doubles bearish bet on Market (short):
Macro
markets risk index still healthy (short):
The
future of QE (short):
Has
it ever worked anywhere, anytime? (short):
The
latest from Marc Faber (1 minute video):
The
latest from Jeremy Grantham (medium):
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