The Morning Call
The Market
Technical
The
indices (DJIA 16393, S&P 1873) staged a powerful comeback yesterday. The S&P pushed back above the upper boundary
of its short term trading range. Under
our time and distance discipline, that re-starts the clock on the confirmation
period. So it needs to remain above 1848
through the close next Monday (time) or close above 1885 (distance) whichever
comes first. The S&P remained within
its intermediate term uptrend (1724-2504) and above its 50 day moving average.
The
Dow finished within its short (15330-16601) and intermediate (14696-16601) term
trading ranges and above its 50 day moving average. Both of the Averages are within long term
uptrends (5050-17400, 736-1910).
Volume
was down (note); breadth improved though the follow of funds indicator is
lagging. The VIX was down, leaving it
within its short term trading range and intermediate term downtrend and below
its 50 day moving average. A check of
our internal indicator shows almost no change from the last review which you
will recall is completely unsupportive of higher prices.
The
long Treasury declined, bouncing off the upper boundary of its short term
trading range. It remains within an intermediate
term downtrend but above its 50 day moving average.
GLD
also sold off though by much less than Monday’s advance. It closed within a very short term uptrend
and a short and intermediate term downtrend.
It also stayed above its 50 day moving average.
Bottom
line: I opined yesterday that ‘it seems reasonable
to me that the bulls will gather their wits and make another assault on the
highs.’ Little did I know? The S&P has again entered a confirmation
period following a break (Monday’s decline re-set the clock). That will be over next Monday at the close or
if it trades over 1885. At the risk of
repeating a discussion from last week: even if the S&P does confirm the
break above 1848, the Dow (and transports) is still in a trading range and
hence out of sync with the S&P. Meaning that the Market will remain
trendless. The other note of caution
that I would inject is that yesterday’s rally was on anemic volume, there was a
lot of short covering and our internal indicator showed no improvement.
That said, the
price move was far too powerful to ignore.
So we again need to be assuming that it is likely that the Averages will
ultimately move to the upside and challenge the upper boundaries of the long
term uptrends.
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.
Fundamental
Headlines
Only
one economic data point available yesterday and that was weekly retail sales
which were mixed.
However,
it was politics that held center stage:
(1) Putin
appeared to back off the threat to invade Ukraine, sending the troops back to
the barracks. That dropped investor heartburn
level dramatically; although it is clear that Russia is still in control of the
Crimea---something that for the time being everyone seems to be ignoring. Speculation is that Putin was surprised by
the drubbing that the ruble as well as the securities markets took in the wake
of his initial military actions; and for a country heavily dependent on
international trade and finance, those are meaningful consequences. Of course, that doesn’t mean that Putin will
allow the markets to ultimately dictate policy; but it could mean that they
have an impact on the pace of policy implementation.
(2) Obama
released His FY2015 budget plan. We
already knew that one of the changes coming was a re-do in defense spending. Also there was higher taxes [$1 trillion, yes
with a ‘T’] on the wealthy and lower taxes on the poor [though one half of the
country pays no taxes]. Just what our subpar
growth economy needs. What planet is
this Guy on?
The good news
is that consensus is that it, like the house tax reform proposal, is DOA. As I said with respect to the latter, this is
an election year and big policy changes generally don’t occur in those
years. Indeed both documents are likely
not much more than election year position papers. For that we can be grateful.
Obama releases His 2015 FY budget
proposal (short):
Obama’s budget in two charts (short):
Ron
Paul on the proposed cuts in defense spending (medium):
Bottom line: despite
stocks’ euphoric reaction to Putin turning down the heat, I have my doubts that
Ukraine will just fade away---although I do believe that whatever ultimately
occurs, it will have little economic impact globally (with my caveat that the
politicians resist the temptation to do something stupid). Rather I still think that the important news
this week has been our own surprisingly positive economic data and the impact
it could have on Fed policy. So far,
investors have either ignored it or are assuming a goldilocks outcome. As you know, I believe that if the Fed tapers
by an extra $10 billion each month (which is the current stated policy), sooner
or later it will have an impact on bond and stock prices.
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.
Seth
Klarman on the market (medium):
Five
investing don’ts from Warren Buffett (medium):
The
consensus portfolio (short):
A
century of policy mistakes (medium):
The
latest from Bill Gross (medium):
Lance
Roberts on the sustainability of profit growth (medium):
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