The Morning Call
The Market
Technical
The indices
(DJIA 16532, S&P 1885) smoked yesterday.
The S&P closed at an all-time high and within uptrends across all
timeframes: short (1790-1967), intermediate (1747-2547) and long (739-1920). The Dow remains within short (15330-16601)
and intermediate (14696-16601) term trading ranges and a long term uptrend
(5050-17400). They continue out of sync
in their short and intermediate term trends---which leaves the Market
trendless.
Volume was low
(what’s new); breadth was negative (very surprising). The VIX was down (not surprising), finishing
within a short term trading range, an intermediate term downtrend and below its
50 day moving average.
The long
Treasury fell again and closed below the upper boundary of its short term
trading range. As you know, TLT had not only
breached the upper boundary of the short term trading range but had also confirmed
the break plus one day. But it
subsequently fell back. Because of this
weak pin action I hesitated to confirm the break; given yesterday’s
performance, I am leaving the trading range as the short term trend.
GLD got smacked
again, leaving it within short and intermediate term downtrends and below its
50 day moving average. The following is
a possible explanation of the recent confusing price movement of gold (must
read):
Bottom line: at continuing risk of looking like an idiot, I
am going to hang on to the ‘party pooper’ moniker. In spite of yesterday’s positive price
action, short covering was a major driving factor, volume was anemic, breadth
was down (which is just one of the increasing number of divergences in the
underlying market) and only a third of the stocks in our Universe are over, at
or near their all-time highs.
Clearly, I can’t
turn a blind eye to price. As I have
said before, price is truth. But the
S&P is 30 or so points from the upper boundary of its long term uptrend---that
is less than 2% upside, if you assume the upper boundary holds. With a much larger downside, I don’t see the
percentages in chasing prices up. Even
if I was trader, I would rather hold off and make the S&P break through
that upper boundary and then put money to work than invest now and risk a
whipsaw.
Meanwhile, we
have a trendless Market; so 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.
Chart
of the day (short):
Update
on valuation:
Fundamental
Headlines
Yesterday’s
economic news was mixed: March PMI was negative, March ISM manufacturing index
was slightly negative, February construction spending was neutral, weekly
retail sales were slightly positive and March light vehicle sales were a
plus. So not to be repetitious, the data
flow has seemingly returned to reflecting a struggling but growing economy.
Once
again, the overseas economic data was not quite as upbeat: the Chinese PMI was
mixed, the EU PMI was negative, a second Chinese bond defaulted and the
Japanese business conditions index dropped to a one year low.
****overnight:
http://www.bloomberg.com/news/2014-04-02/xuzhou-zhongsen-said-to-avert-coupon-default-on-guarantor-relief.html
Other
than these stats, the rest of the day was filled with (1) the senate testimony
of the new GM CEO on their small car ignition problems, (2) a noisy debate on
high frequency trading and (3) Obama crowing about the success of
Obamacare. In other words, I would have
rather been watching basketball.
Bottom line: investors
held on to their upbeat dispositions, I assume supported, at least partially,
by Yellen’s Monday dovish comments. ‘Assume’
being the operative word, because the US economic news was OK but nothing to
get jiggy about and conditions in China, Japan and the EU seem to be getting
worse.
That said, I can
point out all the problems or potential problems that I want and if investors
believe that both good news and bad news are good news, stock prices are going
up. All I can
do is keep updating our Models with any news impacting our assumptions and
record the results---and the current results suggest that stocks are overpriced
and not by just a little.
Yes, the US
economy can continue to grow in spite of faulty fiscal and monetary policies
and the rest of the world can ‘muddle through’; but that scenario is built into
our Models. Until something occurs that
alters the Valuations as determined by our Models, I am going to have to be
content with a 55-60% commitment to equities.
And:
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.
Those
missing jobs Yellen is so worried about (medium):
http://www.nysun.com/editorials/yellens-missing-jobs/88650/
No comments:
Post a Comment