The Morning Call
4/3/14
Number one granddaughter and
number three grandson arrived last night on their spring break. So today’s Morning Call is abbreviated; there
will not be one tomorrow or a Closing Bell on Saturday.
The Market
Technical
Euphoria
continues, driving the indices (DJIA 16573, S&P 1890) ever higher, The
S&P closed at another all-time high and within uptrends across all
timeframes: short (1790-1967), intermediate (1748-2548) and long (739-1920). The Dow is approaching its all-time high, but
remains (just barely) 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 once
again fell; breadth was mixed. The VIX
declined, closing within its short term trading range and intermediate term
downtrend and below its 50 day moving average.
The long
Treasury dropped, finishing within a short term trading range and intermediate
term downtrend but above its 50 day moving average.
GLD rose
slightly, staying within its short and intermediate term downtrends and below
its 50 day moving average.
Bottom line: there is little point in repeating myself; but
to summarize: the prices of the Averages are disguising a lot of technical
weakness. Sooner or later, either the
rest of the market has to catch up or the indices have to roll over. Unfortunately, ‘sooner or later’ is not very
precise.
The good news is
that I am not pressed to be precise because (1) our Portfolios have a large
enough exposure to equities that I don’t feel forced to chase prices up and (2)
the risk/reward for stocks right now, as computed by our Valuation Model, is so
dismal that it would be foolish of me to chase stocks even if our Portfolios
had a much lower equity exposure.
That said, my
best guess is that the Averages will challenge the upper boundaries of their
long term uptrends but unsuccessfully.
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.
Breakout
or fake out? (short):
Update
on valuation measures:
Fundamental
Headlines
US
economic data continues on its mixed course: weekly mortgage applications fell
but the more important purchase applications rose; the ADP private payroll report
showed a rising job count but less than forecast and February factory orders
were above estimates. There was no news
from overseas. There was additional
input on Fed policy and it did nothing but add to an already murky picture.
More confusion
from the Fed (short):
***overnight,
Chinese composite PMI hit a 28 month low but the Chinese government announced a
stimulus program; the EU composite PMI fell but remained in positive territory
and the ECB left interest rates unchanged.
None
of this made any difference because the Market is the news. The indices are moving higher that seems to
be all that matters to investors.
Bottom line: investors
held on to their upbeat dispositions. Tuesday,
I thought that is was due to Yellen’s Monday dovish comments. But yesterday another Fed member directly
contradicted that policy stance and no one cared. Meanwhile, stocks are overvalued and the
risks from deteriorating conditions in China, Japan and the EU seem to be
getting higher.
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.
The
performance of equities versus real estate (short):
Do
you need commodities in your portfolio? (short):
Why
Markets always crash (medium and today’s must read):
Goldman’s
2014 S&P target for 2014 is 10 points away (short):
News on Stocks in Our Portfolios
Economics
This Week’s Data
February
factory orders rose 1.6% versus expectations of up 1.2%.
Weekly
jobless claims rose 16,000 versus estimates of up 9,000.
The
US February trade gap came in at $42.3 billion versus forecasts of $38.8
billion.
Other
The
problems with CPI (medium):
Politics
Domestic
The inexorable rise
of entitlement payments (medium):
International
Russia
and Iran close (I got your sanctions right here) trade deal (medium):
Thursday morning humor
(short):
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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