The Morning Call
3/13/14
The Market
Technical
Yesterday,
the indices (DJIA 16340, S&P 1868) continued to consolidate from an
overbought condition, closing mixed (Dow down, S&P barely up). The S&P is in uptrends across all
timeframes: short (1773-1950), intermediate (1732-2532) 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 flat (at an anemic level); breadth was mixed. The VIX fell slightly, leaving it in a short
term trading range and an intermediate term downtrend but of little assistance
in assessing Market direction.
The
long Treasury was up again, finishing within a very short term trading range, a
short term trading range and an intermediate term downtrend.
GLD
was up strong, again. It remains within
a very short term uptrend, a short term downtrend---though it closed right on
the upper boundary of that downtrend, setting up a challenge of this resistance
line---and an intermediate term downtrend.
Bottom line: once again stocks had every excuse to fall
yesterday as conditions in Ukraine and China got progressively worse. Indeed, the long Treasury rallied apparently
as a safety trade. But, alas, it was not
to be. The euphoria continues
unabated. That said, 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 (1) that pushes one of our
stocks into its Sell Half Range and to act accordingly or (2) as a gift
allowing us to eliminate a stock that fails to meet the quality criteria.
How
Market tops get made (short):
More
on IPO’s (short):
And:
After
five years, where does this bull market stand in historical perspective/
(medium and today’s must read):
Copper
and the stock market (short):
And:
Fundamental
Headlines
Yesterday
was a quiet day for economic data: only one stat in the US---mortgage and
purchase applications were down again---and nothing out of the rest of the
world.
Politics
here and abroad as well as the continuing financial crisis in China dominated
the headlines:
(1) in
the US, Obama is exploring the possibility of issuing an executive order
mandating overtime pay for any employee making more than a certain amount---providing
yet another example of a government regulation that would [a] interfere with
the marketplace, [b] give business yet another reason not to hire [c] hold economic progress to below its historical
secular rate and [d] demonstrate that the political party that holds the white
house and senate just doesn’t get it,
(2) Ukraine
isn’t improving. Russia is moving tanks,
troops etc. to the border area near eastern and heavily Russian Ukraine. Meanwhile in a news conference, our president
rattled the sabers again. This Yahoo
needs a lesson from Teddy Roosevelt [you know, talk softly and all that];
otherwise He is just keeps creating too big a temptation for a punch in the mouth---which
I assume the Markets won’t like.
Latest from the Ukraine:
(3) another
Chinese corporation is now in the bankruptcy crosshairs. The resulting concerns are keeping the
Chinese and other Asian market in turmoil.
Assessing risks in China’s shadow banking
system (medium):
***overnight ,
China reported February industrial production up 8.6% versus expectations of
+9.5% and retail sales up11.8% versus estimates of +13.5%.
Bottom line:
yesterday was a relatively quiet day though the risks to our Markets haven’t
changed: the Chinese financial system, the Japanese economy, the US economy,
the EU economy, Fed tapering and the political instability in Ukraine. So investors have plenty of reasons to be squirrely;
but steadfastly refuse to do so. I
assume that means that the news could potentially get worse and it would still
have no impact on sentiment.
However,
investor disregard for the associated risks doesn’t mean that they won’t occur
and even if they don’t, equities are still significantly overvalued on a
relatively positive economic scenario.
In short, with a 2-3% upside (the upper boundaries of the Averages 85
year old long term uptrend), it makes little sense to me to risk principal when
the downside is S&P 1400-1500.
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.
Lessons
from the bull market (medium):
Buying
dividend growth versus yield (medium):
Subscriber Alert
The
stock price of ITC Holdings (ITC-$37) has traded above the upper boundary of
its Buy Value Range. Accordingly, it is
being Removed from the Dividend Growth Buy List. The Dividend Growth Portfolio did not Buy
this stock.
The
stock price of Dr. Pepper Snapple (DPS-$53) has traded above the upper boundary
of its Buy Value Range. Accordingly, it
is being Removed from the High Yield Buy List.
The High Yield Portfolio did not Buy this stock.
In
our periodic review of the fundamentals of the companies in our Universe, the
following occurred:
The
Valuation Range for Reliance Steel (RS-$69) was revised downward. While it still qualifies for inclusion in the
Aggressive Growth Universe, it no longer is valued for inclusion on the
Aggressive Growth Buy List. Hence it is
being Removed. The Aggressive Growth
Portfolio will continue to Hold RS.
Kinder
Morgan Energy Partners (KMP-$75) no longer qualifies for the High Yield
Universe as a result of deteriorating fundamentals. Accordingly, it is being eliminated form our
Universe and the position will be Sold at the Market open.
Suncor Energy (SU-$33) no longer qualifies for
the Aggressive Growth Universe as a result of deteriorating fundamentals. Accordingly, it is being eliminated from our
Universe and the position will be Sold at the Market open.
No comments:
Post a Comment