The Morning Call
The Market
Technical
The
indices (DJIA 16272, S&P 1854) traded up yesterday. The Dow finished with its short
((15330-16601) and intermediate (14696-16601) term trading ranges. The S&P closed above the upper boundary
of its short term trading range (1746-1848---I know I have been carrying this
as 1858. Apparently, sometime in the
past I transcribed the number and then subsequently didn’t catch my
error). That starts the clock on our
time and distance discipline which requires the S&P to remain above this
level until the close next Wednesday. As
you can see, even if the break is validated, it would leave the Averages out of
sync on their short term trends---which would leave the Market in a no man’s
land with respect to its short term trend.
Intermediate
term, the S&P is in an uptrend (1721-2501).
Both of the Averages are above their 50 day moving averages and are in
long term uptrends (5050-17400, 736-1910).
Volume
was flat; breadth improved. The VIX fell
leaving it within a short term trading range and an intermediate term downtrend
and below its 50 day moving average.
Finally, I checked out our internal indicator at yesterday’s close. In a Universe of 155 stocks, 43 finished either
at or above their all-time highs, 112 did not.
Clearly this is not supportive of an upside breakout.
Update
on sentiment (short):
The
long Treasury moved up, staying within its short term trading range (indeed it
is nearing the upper boundary of that range) and its intermediate term downtrend.
GLD
bounced back, finishing within a very short term uptrend but also a short and
intermediate term downtrend. This puppy
just doesn’t want to correct.
Bottom
line: the fourth time was a charm for
the S&P---it closing above its all-time high. There are a number of caveats to this action:
(1) volume was puny, (2) out internal indicator was hardly supportive, (3) if confirmed,
this will leave the Averages out of sync---which leaves the Market trendless
and (4) under our time and distance discipline, this challenge won’t be
confirmed until next Wednesday [time] or the S&P advances to 1885 [distance]
whichever comes first.
Meanwhile, 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.
Another good
investing lesson from Todd Harrison (short):
Fundamental
Headlines
We
finally got a data day that could be characterized as mixed (I can’t remember
the last time that I was able to make that characterization): January durable
orders were down less than anticipated, though December orders were revised
lower; the February Kansas City
manufacturing index came in better than expected; but weekly jobless claims
were above estimates. I don’t want to
get too jiggy about a single mixed day, but at least we finally have some positive
datapoints.
In
other US news, Yellen testified before the senate yesterday, but little new
came from it. Two minor points: (1) she
did acknowledge that the economic data has been a bit weaker than expected but attributed
much of it to the weather---hence, expect no near term action from the Fed
stemming from the economy and (2) she gave no further guidance on the expected
changes in forward guidance.
The
problem with Fed policy (medium and today’s must read):
BoA
on the weather’s impact on the economic data (short):
Overseas,
the Chinese yuan continued to push lower---a major negative for the carry trade---and
the tension in Ukraine remained at a high pitch. On the latter point, I am not so much worried
about what occurs internally or any spillover economic impact on the rest of
the world (Ukraine is small, poor and its debt is not widely held) as I am
about the risks of some kind of international showdown between the US and
Russia. To be clear, I don’t think that there
will be shots fired; no what worries me is that Obama and/or Kerry draws
another line in the sand; and Putin just doesn’t push back but creates a crisis
from which Obama/Kerry have no choice but to back down and the US loses face
big time. I don’t think that would be
good for investor morale.
Bottom line: the
S&P unquestionably took out its old high, although not dramatically so. On the one hand, there were a number of non-supportive
technical factors which I listed above.
On the other hand, the advance was in the face of rising tensions around
Ukraine and Yellen sticking with tapering.
So at the moment, I have every reason to believe that the current
challenge has as strong a likelihood of being confirmed as any other. The one thing that has to happen is that
breadth has to catch up to price; but again there is no reason at the moment to
assume that it won’t.
If the Averages
do take out their highs, then the next target is the upper boundaries of their long
term uptrends. However, those levels are
so close that I don’t see a lot of reward for spending cash reserves; and when I
compare it to the downside risk due to significant overvaluation, there is no
incentive for me to get off the sidelines.
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.
It
is a cautionary note not to chase a rally if it occurs.
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