The Morning Call
4/8/14
The Market
Technical
The indices
(DJIA 16245, S&P 1845) had a second bad day in a row. However, the S&P closed within uptrends
across all timeframes: short (1802-1979), intermediate (1748-2548) and long
(739-1920). The Dow remained within
short (15330-16601) and intermediate (14696-16601) term trading ranges and a
long term uptrend (5050-17400). So far,
the technical damage has been limited; although the Averages continue out of
sync in their short and intermediate term trends---which leaves the Market
trendless.
Volume rose (as
it did on Friday’s down day); breadth was poor.
The VIX jumped 12%, finishing within its short term trading range and intermediate
term downtrend. It rose above its 50 day
moving average.
The long
Treasury was up, closing once again above the upper boundary of its short term
trading range. If it remains there
through the close on Wednesday, the break in trend should be confirmed under
our time and distance discipline. Given
the recent false breakout, I am considering holding off for a day or two. Arguing against being so conservative are TLT
is (1) in a very short term uptrend and (2) above its 50 day moving average. Nonetheless, I remind you that a break to the
upside would suggest either (1) a recession or (2) some traumatic international
event [driving money into the US as a safety trade]. It remains within an intermediate term downtrend.
GLD continues to
act awfully, declining again. It
finished within both short and intermediate term downtrends and below its 50
day moving average.
Bottom line: despite a couple of lousy trading days,
nothing has really changed in any of the trends of either Average. To be sure, there are some internal divergences;
plus in the last two trading days, a number of the stocks in our Universe are
breaking short and intermediate uptrends.
So as noted last week, the prices of the Averages are not really
reflective of stocks in general and, therefore, eventually, either the rest of
the market has to catch up to the indices or the indices have to roll
over.
I have not
provided much by way of added value lately in predicting which of the above alternatives
will occur and/or when it will occur; and I am not anticipating a change. So until stocks become more reflective of their
underlying value (as calculated by our Valuation Model), I remain content to
leave the equity exposure of our Portfolios (55-60%) unchanged. That said, my best guess is still 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.
Fifth
‘down Friday, down Monday’ in 2014 (short):
Fundamental
Headlines
No
economic data here or abroad yesterday.
There
is ongoing turmoil in and around Ukraine as the political temperature rises in the
heavily Russian populated eastern and southern sectors of that country. It has all the looks of another scenario in
which the Ukrainian Russians claim abuse, Putin obliges by annexing another
chunk of the country and sabers start rattling even louder---a circumstance
that seems to be giving investors the willies.
As I have said before, I think a military confrontation unlikely; but
there could be trade/economic maneuvers that would impact energy prices or
aggregate economic activity in Europe.
Latest
from Ukraine (medium):
And
Moldova (short):
Bottom line: the
‘happy days’ mentality of investors seems to have been put on hold, at least
temporarily. Whether or not it lasts is
a mystery to me. What isn’t in doubt is
that Fed policy is as clear as mud, the ruling class is doing nothing to help the
economy or the electorate, economic conditions in China, Japan and Europe aren’t
exactly ideal and having given Obama a nuclear wedgie over the Crimea, Putin appears
to be moving forward with plans to undo ‘the greatest historical mistake of the
twentieth century’. Meanwhile, stocks are overvalued.
An inside look
at a Chinese investment trust (medium and today’s must read):
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.
Cramer
on the destruction in the high fliers (medium):
The latest from
John Hussman (medium):
Father
of high speed trading speaks out (medium and a must read):
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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