The Morning Call
The Market
Technical
Investors
apparently decided that Yellen had committed a rookie error in her Wednesday
press conference and pushed the indices (DJIA 16331, S&P 1872) back
up. The S&P remained within uptrends
across all timeframes: short (1781-1958), intermediate (1734-2534) 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). So they remain
out of sync in their short and intermediate term trends---which leaves the
Market trendless.
Volume
was flat; breadth improved but not by much.
The VIX dropped, finishing within its short term trading range, its
intermediate term downtrend and above its 50 day moving average.
The
long Treasury declined again, closing within its short term trading range and
intermediate term downtrend. The good
news is that it continues to trade above its 50 day moving average; the bad
news is that every day it looks more and more like it has made a triple top---not
good for bond prices.
GLD
had a volatile day, ending down only slightly.
It remains on the lower boundary of its very short term uptrend but
within short and intermediate term downtrends and above its 50 day moving
average.
Bottom
line: most bulls quickly put Wednesday’s
FOMC meeting behind them, I assume meaning that either they aren’t worried
about the Fed tightening too soon or that they believe that the Fed will execute
a near perfect transition from easy to tight money. Their enthusiasm notwithstanding, the Market
technical internals that I watch continue to weaken. Hence, I believe that there is likely enough
strength remaining to get the Averages close to the upper boundaries of their
long term uptrends but not enough to push them through.
My intent is to
use any price strength (1) that pushes one of our stocks into its Sell Half
Range, to act accordingly or (2) as a gift allowing us to eliminate a stock
that fails to meet its quality criteria.
Technical
analysis and individual investors (medium):
The
latest from the Stock Traders Almanac (short):
Fundamental
Headlines
Yesterday’s
US economic data was generally upbeat: the March Philly Fed manufacturing index
was better than expected, February existing home sales were down but in line
and the February leading economic indicators were above estimates but a
revision of January’s number erased that gain.
In short, the stats are so so but a big improvement from a month ago.
Other
than the Market reversing its original take on the FOMC statement/Yellen news
conference, the other financial news was the release of the latest bank stress
test---and all the major banks but one passed.
Let me stipulate that there is no doubt in my mind that the banks are in
better financial shape than they were last year or the year before. Indeed, I would be shocked if they weren’t. Improved operations aside, the Fed has been, since
the advent of QE’s, permitting them to arbitrage interest rates on trillions of
dollars in reserve; in essence, giving the banks free money. I would simply caution before getting too
jiggy that (1) neither we nor the Fed have a way of accounting for the
magnitude of the counterparty risk that the banks carry in their derivative
trading and (2) there were plenty of regulations and tests back in the early 2000’s
to prevent bank insolvencies. The
problem was that they were not administrated properly. So the mere existence of a stress test means
nothing if it is (was) not properly monitored.
And
(short):
More
on the FOMC meeting (medium):
The
author is usually good about including the caveat that if the banks start
drawing down reserves faster than the Fed removes them, the danger of inflation
rises (medium):
Overseas,
the Chinese financial problems continue.
Two more Chinese corporations defaulted.
However, the government did announce that it would be accelerating some
construction projects to help ‘stabilize’ the economy. That is all well and good but when you have
already built more cities than there are people to live in them, when you have
expended mines and factories to point that much of the output is being
inventoried, more construction exacerbates the problem (more useless assets
that have to compete with the already useless assets that can’t support the
already unserviceable debt). Meanwhile
the Chinese equity markets have entered bear market territory:
China’s
latest Beige Book report (short):
***overnight, major domestic banks are said to have
stopped selling trust products which were blamed for encouraging reckless
borrowing and diluted credit standards.
Bottom line: investors
are back in harmony with the Fed and all the world is right. At least that is as it seems. True the economic data is improving thereby
lessening the odds of recession; but as you know, I have never been worried
about a recession. Further, the exercise
necessitated by the stress test was undoubtedly helpful especially with
memories of 2008/2009 still fresh in everyone’s memory. Banks are indeed more liquid and better prepared
for adversity than in 2008/2009. But
that doesn’t mean that they have cleared out all the booby traps in their proprietary
trading desks nor does it mean that the banksters have learned a lesson from their
past inappropriate behavior---remember not a single one of them has been fined
or is in jail.
My immediate
concerns are (1) China whose financial system seems to deteriorate daily (2)
the excessively high valuation of US stocks---both of which I have belabored
enough.
Things aren’t so
hot in Japan either (short):
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.
Fundamental
divergences (short):
Investing for Survival
Ukrainian
government proposes tax on bank deposits (medium):
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