The Morning Call
The Market
Technical
The
indices (DJIA 16335, S&P 1872) continued to rally yesterday. The S&P remained within uptrends across
all timeframes: short (1777-1954), 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
continue out of sync in their short and intermediate term trends---which leaves
the Market trendless.
Volume
declined; breadth was mixed. The VIX
fell, finishing within its short term trading range and intermediate term downtrend
but still over its 50 day moving average.
The
long Treasury rose, leaving it within a short term trading range and an intermediate
term downtrend. While the potential of a
triple top is a worry, breadth continues very strong and it remains above its
50 day moving average.
GLD
fell, closing within a very short term uptrend and within a short term downtrend,
having failed at its first challenge of the upper boundary of that trend. It is also in an intermediate term downtrend.
Bottom
line: my skepticism regarding Monday’s
rally proved meaningless, as prices continued to advance. However, volume remains anemic, breadth is
mixed and a number of other divergences continue to flash yellow. Clearly, the buyers are still out there,
though now there is some evidence that they might be weak holders:
Nevertheless, all
signs point to their ability to push the Averages to the upper boundaries of their
long term uptrends; however, if they are weak buyers as the above article
suggests, it would confirm my thought that they will not be able to push prices
beyond those levels.
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.
‘Sell
in May and go away’ in midterm years (short):
Fundamental
Headlines
Another
day of mixed US economic data: February CPI and CPI ex food and energy were on
target; but weekly retail sales were mixed; February housing starts were a
disappointment, but building permits were up.
That is nothing to jump up and down about but it is on par with the flow
of the last two weeks---meaning that it also wasn’t terrible.
Overseas:
(1) the
German high court cleared the EU bailout fund---which is great news if you love
the thought of potentially more banksters being bailed out of horrendous
business decisions by the EU taxpayer.
It is not so great if you are depending on Europe doing anything other
than ‘muddling through’.
(2) the
Chinese yuan fell in the wake of the widening of its trading ban. This is not a good sign for the ‘carry trade’
crowd.
***overnight:
(3) Putin
announced that Russia had no additional territorial ambitions beyond re-uniting
with Crimea [which was the main headline of the day]. He must have forgotten [a] to send a memo to
the troops on the ground as a live fire fight broke out and one Ukrainian
soldier was killed {I never heard one mention of this incident all day on CNBC}
and [b] his signature statement that the dissolution of the Soviet Union was
the greatest tragedy of the twentieth century.
Yesterday’s pin
action suggests that investors believe that the Ukrainian crisis is behind
us---and it maybe [operative word].
Bottom line: Putin calming statement
yesterday notwithstanding (1) I have my doubts that Ukraine will just fade into
the sunset as an issue and (2) I was and still am more concerned about the
Chinese financial system than about any repercussions from a US/EU/Russian standoff. In addition, neither the Japanese, nor the US
nor the EU economies are out of danger of slipping into a recession---certainly
that is one possible message being delivered by the bond markets. Finally, Fed tapering is on schedule---a
least until 2PM this afternoon. As you
know, I am much less concerned about its impact on the economy than I am about
that of the Markets; and when coupled with the squeeze being put on by the Chinese
central bank, the potential for investor heartburn remains.
In my opinion, the
overriding metric right now is the nosebleed level of stock prices. Even assuming Ukraine were to fade into the
sunset, the major global economies continue to grow and the US and Chinese
central banks pull off a perfect dual easing combo, those scenarios are
implicit in our Valuation Model. That
is, the upper boundaries of Sell Half Ranges in our Valuation Model are all
premised on a perfect environment. Yet
our Portfolios have been pushed to a 40-45% cash position by stocks hitting
that ‘perfect environment’ price range.
True, not all the stocks in our Universe are at such lofty levels. But most are close enough that it would be
nuts to be Buying them.
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.
http://www.marketwatch.com/story/are-investors-preparing-for-a-correction-2014-03-17?dist=beforebell
The
latest from Jeremy Grantham (in brief):
Cheap
and simple beats expensive and complex (short):
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