The Morning Call
The Market
Technical
How do you say,
schizophrenia? Yesterday was another
roller coaster day for the indices (DJIA 16262, S&P 1842) and once again,
they ended in the plus column. The
S&P closed within uptrends across all timeframes: short (1807-1984),
intermediate (1758-2558) and long (739-1910).
The Dow remained within short (15330-16601) and intermediate
(14696-16601) term trading ranges and a long term uptrend (5050-17400). They continue out of sync not only in their
short and intermediate term trends but also in their 50 day moving average (Dow
above, S&P below). The Market remains trendless.
Volume managed
to rise fractionally; breadth, however, was mixed. The VIX fell, finishing within its short term
trading range and its intermediate term downtrend and above its 50 day moving
average (a potential negative for stocks).
The long
Treasury rose, closing within its short term uptrend, its intermediate term
downtrend and above its 50 day moving average.
GLD got
hammered, leaving it within its short and intermediate term downtrends and
below its 50 day moving average.
Bottom line: despite
the huge increase in the intraday volatility over the last two days, in the end,
the Averages closed up nicely on both days.
Yesterday’s follow through was a clearly a positive as was the S&P
bouncing off the lower boundary of its short term uptrend---especially since it
occurred in the face of an overwhelmingly negative news flow. On the other hand, volume has been low,
breadth mixed and the indices are out of sync in their short and intermediate
term trends as well as their 50 day moving averages. In short, the technical picture is a bit
murky. Hence, prices could go either way
(duh). That said, I think that the safe
assumption has to be that the indices will challenge the upper boundaries of
their long term uptrends and will remain so until the S&P starts breaking
support levels.
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.
Fundamental
Headlines
Yesterday
was not a good day for the news flow. US
economic numbers were all negative: March CPI was hotter than expected, the
April NY Fed manufacturing index was a disappointment and weekly retail sales
were mixed at best. Overseas, Chinese
auto sales slowed, UK retail sales fell, the Bank of China tightened money
supply, the Japanese government said first quarter GDP would be below forecasts
and the Ukrainian government sent in the troops to re-take some of the
government buildings occupied by (Russian) dissidents.
The
Japanese government downgrades its outlook for growth
Latest
from Ukraine:
***overnight, Chinese GDP
growth slowed to lowest level in 18 months.
Bottom line: that
stocks could finish as strongly on the upside when the news flow was so
negative suggests that (1) stocks were more oversold than I thought and/or (2)
the underlying bullish sentiment is much more powerful than the divergent
sentiment/technical indicators imply and/or (3) all those fundamental factors
about which I am concerned are already priced in the Market and/or (4)
investors interpreted all the bad news as meaning that QEInfinity remains the
US and Japanese dominant monetary policy and/or (5) some combination of some or
all of the above or (6) it was random noise.
There could be more alternatives although it wouldn’t matter, because if
it wasn’t (6) then I am clueless---which wouldn’t be the first time.
My bottom line
is that for current prices to hold, it requires a perfect outcome to the
numerous problems facing the US and global economies AND investor willingness to
accept the compression of future potential returns into current 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.
Will
first quarter earnings be down? (short):
And
the weakest earnings cycle in 55 years (short):
http://www.thereformedbroker.com/2014/04/15/jeffrey-kleintop-the-weakest-earnings-cycle-in-55-years/
Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Investing For Survival is to help other investors build wealth and benefit from the investing lessons he learned the hard way.
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