The Morning Call
The Market
Technical
The
indices (DJIA 16351, S&P 1867) drifted lower yesterday. The S&P is in uptrends across all
timeframes: short (1773-1950), intermediate (1730-2530) and long (739-1910). The Dow finished within short (15330-16601)
and intermediate (14696-16601) term trading ranges and a long term uptrend (5050-17400). Clearly, they are not in harmony in their short
and intermediate term trends---which leaves the Market trendless.
Volume
was up slightly; breadth was terrible.
The VIX rose, closing within its short term trading range and intermediate
term downtrend.
The
long Treasury (106.2) moved higher again.
After breaking a very short term uptrend, it appears to have stabilized at
a prior support level (105.4) which may act as a lower boundary of a very short
term trading range---a potential plus for bonds. In addition, breadth has been
quite strong, even during the recent sell off. It remains within a short term trading range
and an intermediate term downtrend.
GLD
continues to advance. It closed within a
very short term uptrend and, like the long Treasury, breadth has been very
positive. However, it is also in a short
and intermediate term downtrends.
Bottom line: some sort of rest for stocks in an overbought
condition should not be a surprise.
While the news from Ukraine and China is still concerning, nothing had
changed from Monday when investors pretty much ignored those situations. On the other hand, the indices are not in
sync and that is a constraining factor.
However, given the Markets proclivity to view all news as good news, I continue
to believe the odds are high for a challenge of the upper boundaries of the
Averages’ long term uptrends.
There is really
not much for me to do save using any price strength that pushes one of our
stocks into its Sell Half Range and to act accordingly.
Fundamental
Headlines
US
economic news was mixed to negative: weekly retail sales were up and January
wholesale inventories were up more than expected. However, wholesale sales cratered and that is
not good. In addition, the February
small business optimism index came in at 91.4 versus estimates of 94.0. While not the best news we could get, it does
fit the pattern of recent weeks and is not so bad that investors still won’t
use weather as an excuse.
Overseas,
January German trade grew at its fastest rate in two years---positive EU
economic news always helpful.
However,
Ukraine and China still control the spotlight and news was not good from either
situation.
Threats and
accusations are flying back and forth between Ukraine/US and Russia, though
Russia is in control of Crimea and building its presence daily.
The latest from
Ukraine (short):
And:
While
Chinese securities and commodities markets remain in turmoil, the government
continues to do a pretty good job keeping economic conditions under
control. The risk, of course, is that
there is so much junk hidden in their financial system that unwinding the
damage will be tough to manage.
Bottom line: there
are plenty of potential risks out there (the Chinese financial system, the
Japanese economy, the US economy, the EU economy and the political instability
in Ukraine); but none have developed into a crisis that has negatively impacted
Market psychology---yet. And, in truth,
none may ever materialize. But there are
plenty of them and the likelihood of any one of them occurring is not
insignificant.
My point here is
and has been that (1) stocks are priced on the assumption that there is no risk
of any of the above happening and (2) indeed, they reflect that there is a high
probability that the economy will do better than our forecast and that the Fed
will miraculously transition policy to tighter monetary conditions with near
perfection. This may all transpire just
as the optimist believe. But I am not a
believer and I think that discretion is the better part of valor
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 this rally.
Bank
of America looks at the Chinese credit problem (short):
More
on the Chinese financial problems (medium):
And
(medium):
Subscriber Alert
At
the open this morning, the Aggressive Growth Portfolio is initiating positions
in the ishares S&P 500 VIX short term futures ETF (VXX) and the Ranger
Short Equity Bear ETF (HDGE). Both of
these holdings are bets against the Market and both are selling near historic
low prices. Since the Market’s price
momentum is still to the upside, these are very small initiating bets (roughly
2% positions) that (1) will be Added to in the future and (2) should be viewed
as trades with very close Stop Losses.
Please note that these are occurring only in the Aggressive Growth Portfolio
and should not be undertaken by anyone other than the most sophisticated
investor and in a size where the loss can’t be easily absorbed.
No comments:
Post a Comment