The Morning Call
The Market
Technical
So
much for a ‘strong rally not being likely’.
The indices (DJIA 15628, S&P 1773) surged. The Dow finished above its 200 day moving
average as well as the upper boundary of its short term downtrend. A close above either level today will confirm
the break of that trend. In the case of
the short term trend, it will then re-set to a trading range. The DJIA remained within its intermediate
term trading range (14696-16601)
The
S&P finished within its short term trading range (1746-1858), its
intermediate term uptrend (1703-2483) and above its 200 day moving average. Both of the Averages are within their long
term uptrends (5050-17400, 728-1900).
Volume
was low, despite the price pop; breadth improved but the flow of funds
indicator barely moved. The VIX fell
14%, closing within its short term trading range and its intermediate term downtrend.
The
long Treasury was off again, confirming the break of its short term
uptrend. It will re-set back to a
trading range. TLT remains within an
intermediate term downtrend but above its 200 day moving average.
GLD
inched lower, finishing within its short and intermediate term downtrends.
Bottom line: as
it turns out, stocks were consolidating in anticipation of a bounce---my least likely
scenario (this is a humbling business).
Any follow through to the upside will move the Averages back closer to
being in sync: both will be in short term trading ranges, both will be above their
200 day moving averages. But their
intermediate term trends will be divergent.
Given the lack
of volume of the rally, one would think that investors will have a lot of work
to do to get both short term trends as well as the DJIA intermediate term
trading re-set back to the upside. On
the other hand, increased volatility will help.
We all know that
my book is betting on a further decline.
And we all also know that I am wrong, at least to date, on that
assessment. So nothing says that stocks
won’t rally back to new highs. That said, our Portfolios’ above average cash
position long with the extreme overvaluation of equities makes it somewhat easier
to sit back and wait for the Averages to get back in sync and establish direction.
In the meantime,
it is too soon to be Buying and too late to be Selling anything other than
stocks that violate their Stop Loss Prices or whose company has declined in quality
and no longer qualifies for inclusion in our Universe.
Both
of these are must reads:
Is
a bear market looming (short)?
Is
the pullback over? (medium):
Fundamental
Headlines
Yesterday’s
US economic news had two gems: a larger drop in jobless claims than expected
and a substantial improvement in fourth quarter productivity and unit labor
costs. That got the Market off to a
roaring start and it never looked back.
There were, however, some less than upbeat stats though they were of
much less significance than the aforementioned and clearly no one cared: the
December trade deficit widened from November and January retail chain store
sales (10% of total retail sales) declined.
Overseas,
the ECB left interest rates unchanged---suggesting that it is not worried about
a deceleration in growth; although German factory orders fell versus a forecast
of an increase.
****overnight,
Chinese services PMI fell to new low while overnight repo rates soared 127bp.
Bottom line: as
you know, employment is one of the three economic factors (retail sales,
employment and production) that have investors concerned. Yesterday positive jobless claims number
supported by Wednesday’s ADP private payrolls report, apparently eased worries
and goosed animal spirits. It seems
awfully risky to me for investors to be getting jiggy over two secondary
indicators ahead of the primary employment stat---but that is just me. Clearly, I am in the minority.
Of course,
yesterday was only one trading session; and the key is follow though. However, whether or not the bulls have
reclaimed control of the Market, the overriding issue at the moment is that stocks
are very richly valued. Hence, our
strategy calls for patience on the downside and using the price advance into a
Sell Half Range of any stock in our Portfolios, to do just that.
***nonfarm
payrolls came in well below expectations but futures are up suggesting that
concerns about recession/deflation are waning and the follow through to
yesterday’s spike will be to the upside.
The
latest from Lance Roberts (medium):
The
biggest risk to the bears (medium):
Are
we headed for a recession (short)?
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