The Morning Call
3/4/14
The Market
Technical
The
indices (DJIA 16167, S&P 1845) had a rough day. The S&P was pushed back below the upper boundary
of its short term trading range (all time high), which under our time and
distance discipline negates last Thursday’s break and leaves the S&P in a
short term trading range (1746-1848). It
remains within an intermediate term uptrend (1724-2504).
The
Dow finished within short (15330-16601) and intermediate (14696-16601) term
trading ranges. Both of the Averages are
within long term uptrends (5050-17400, 736-1910).
Volume
fell; breadth deteriorated. The VIX
jumped 14%, closing within a short term trading range and an intermediate term downtrend
and above its 50 day moving average.
GLD
spiked, leaving it within a very short term uptrend, short and intermediate
term downtrends and above its 50 day moving average.
Bottom
line: even though yesterday represents
the fourth failure of the S&P to successfully challenge its all-time high, it
likely doesn’t means ‘look out below’---primarily because the driving force for
the pin action was the political situation in the Ukraine and, barring some colossally
stupid move by the US, I don’t see this situation ultimately leading to a significant
economic/political negative. Hence, it
seems reasonable to me that the bulls will gather their wits and make another assault
on the highs.
That said, the
divergences I keep harping on remain, so I think that the going to the upside
will be laborious if indeed it proves successful.
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.
Another good
investing lesson from Todd Harrison (short):
This
data is very similar to our internal indicator (short):
Fundamental
Headlines
Yesterday
was a god send for the economic optimists---lots of data and almost all of it
positive: January personal income and spending were up, the February Market PMI
was strong, the February ISM manufacturing index rose, January construction
rose versus an expected decline and light vehicle sales were flat. Clearly, those of us who are either not in
the recession camp or are hoping that the weather will ultimately account for
much of the recent economic weakness, can take heart. It certainly makes NOT altering my forecast
easier.
That
said, how this new data plays out among the bulls is a question. Will good (economic) news be bad (Fed) news
(tightening)? Or will the goldilocks
scenario (the economy and the Fed will live in harmony forever) prevail? I have no clue.
Overseas,
the economic data was not so hot: the Chinese manufacturing PMI was down,
though the service PMI was up. Across
the pond, the EU PMI fell. None of this
does anything to lessen the international economic risks.
Of
course, yesterday’s dominating event was the political/military situation in
Ukraine. It is clear that Russia has
control of the Crimea. Beyond that, all
we have is hyped statements from Ukraine, Russia and the US with little
clarity. I believe that it is reasonable
to assume that (1) Russia will not let Ukraine move out of its sphere of
influence without a struggle. (Remember
Putin’s signature statement that the breakup of the Soviet Union was the
greatest tragedy of the 20th century) and (2) there is little that
the EU or the US can do about it, save lose a faceoff. In short, I view this as a temporary hiccup
with little lasting significance---with the caveat that the US doesn’t do
something really stupid that provokes a Russian response for which there is no sane
counter.
***overnight,
Putin appears to have back off a bit, returning troops to their bases.
Bottom line: the
S&P’s pin action yesterday negated the recent break, although the driving
force of the selloff (political/military situation in Ukraine) is not apt to be
either permanent or economically negative (with a caveat). To me, the more
important question is, how investors will interpret yesterday’s very upbeat economic
news viz a viz Fed policy, especially if the general flow becomes more
mixed/positive? I have long since lost any
appreciation of or empathy with the Market’s reasoning on Fed policy, so I don’t
trust myself to answer the question. But
I do think that the answer will be a determinate of Market direction in the
near future. So I remain on the
sidelines, skeptical of equity valuations, unimpressed by the current
risk/reward offered by the Market and watchful of any price moves that would
take one of our holdings into its Sell Half Range.
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 a rally if it occurs.
Price
compression (medium and a must read):
Warren
Buffett’s investment advice to his wife (medium):
Munis
regain popularity (medium):
The
latest from John Hussman (medium):
What next in the US bond market (short)?
And the European bond market (short):
No comments:
Post a Comment