The Morning Call---Watch the jobless claims and jobs reports

The Morning Call

2/6/14

The Market

           

    Technical

            Yesterday, the indices (DJIA 15440, S&P 1751) churned through most of the day, ending slightly to the negative side.  The Dow is in a short term downtrend (15123-15594), an intermediate term trading range (14696-16601) and below its 200 day moving average.  The S&P unsuccessfully tested the lower boundary of its short term trading range for the second time (a mild plus for the bulls), remains within an 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 continued to shrink; breadth was mixed.  The VIX rose, again finishing near the upper boundary of its short term trading range.  It remains within an intermediate term downtrend.

            The long Treasury fell, breaking its recently re-set lower boundary of a new short term uptrend (although it is still above the upper boundary of its former short term trading range).  If it closes below the aforementioned new lower boundary on Thursday, then it will re-set to a news short term trading range.

            GLD was up but finished within short and intermediate term downtrends.

Bottom line:  the Market continued to consolidate although in anticipation of what (another leg down, a rebound or more consolidation) is uncertain.  I think that (1) enough technical damage has been done and (2) with the Averages remaining out of sync that a strong rebound seems unlikely---unless we get some blowout economic data. 

With little visible support between current levels and the lower boundaries of the indices current short term trends, lower prices are a decent possibility---though the downtrend won’t be solidified until the S&P successfully challenges the lower boundary of its intermediate term uptrend. 

That in turn leaves a lot of distance within which stocks can consolidate.  So clearly there is a probability for that scenario to unfold.  In the meantime, we can only watch.  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.

            More on the January Barometer (3 minute vide0):

            http://blog.stocktradersalmanac.com/post/Markets-Dystopian-Future-So-Much-for-Turnaround-Tuesday-SPX-DJIA

All in technical land is not bad (medium):

            http://advisorperspectives.com/dshort/guest/Chris-Puplava-140205-Market-Bottoms.php

            Update on sentiment (short):

            http://www.bespokeinvest.com/thinkbig/2014/2/6/the-bulls-have-left-the-building.html

     Fundamental

    

     Headlines

            Yesterday’s US economic data was mixed: weekly mortgage applications were up slightly while purchase applications were down; the ADP private payroll report showed an increase in employment, though less than in prior months and the ISM nonmanufacturing index was right in line with estimates.  I didn’t think that there was anything particularly disturbing in these numbers---but investors got squirrelly over the ADP figure worrying that it could presage a lousy weekly jobless claims report today and the employment number that will be released on Friday.

            http://www.capitalspectator.com/adp-slower-growth-for-payrolls-in-january/#more-3179

            Overseas, EU retail sales were down 1.6%---and that didn’t help sentiment.

            However, I think that the most important number was volume; in that it indicated that investors were basically unwilling to do anything ahead of the two jobs indicators.  (Remember, last month’s employment report was poor and the concern is that two bad datapoints in a row would really add to the recession/deflation concern).

Bottom line: investors were doing nothing yesterday, waiting the further evidence on the employment situation.  Those two stats are apt to set the tone for the Market over the next week in the absence of any additional news out of the emerging markets.  Clearly, there are enough economic crosscurrents to keep uncertainty/volatility high.  

However, the overarching consideration remains that stocks are very richly valued; and if the recent dataflow is any indication, that situation is not going to be improved by a better than expected economy.  Indeed, based on our Model, stocks could decline another 15-20% with no change in the economic outlook. 

            At the moment, it is far too soon to be anticipating such a sell off or to be altering our economic forecast.  It is a time for continued patience.

            The danger of global recession (10 minute video):

            http://www.nakedcapitalism.com/2014/02/danger-global-recession-30-years-neoliberal-counterrevolution.html

            Good article on emerging markets’ currency devaluation (medium):

            http://www.theatlantic.com/business/archive/2014/02/everything-you-need-to-know-about-the-emerging-market-currency-collapse/283590/

            More on valuation (medium):

            http://advisorperspectives.com/commentaries/pring_020514.php

            And (medium):

            http://advisorperspectives.com/dshort/updates/Market-Cap-to-GDP.php

            More from Marc Faber (3 minute video):

            http://www.zerohedge.com/news/2014-02-05/marc-faber-us-stocks-need-drop-40-become-attractive

     Subscriber Alert

            The stock price of Tim Hortons ($51) has fallen below the lower boundary of its Buy Value Range. Accordingly, it is being Removed from the Aggressive Growth Buy List.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Investing For Survival is to help other investors build wealth and benefit from the investing lessons he learned the hard way.