The Morning Call
The Market
Technical
The indices
(DJIA 16514, S&P 1879) added to their winning streak yesterday. Both remained above their 50 day moving
average; and both busted through the last lower high (16484, 1873), implying
that the bulls have resumed control. The
S&P closed within uptrends across all timeframes: short (1813-1990),
intermediate (1767-2567) and long (739-1910).
The Dow remains within short (15330-16601) and intermediate
(14696-16601) term trading ranges and a long term uptrend (5055-17405). They continue out of sync in their short and
intermediate term trends; but clearly the Dow is inches away from breaking
above the upper boundary of its short/intermediate term trading range (s).
Volume rose
fractionally; breadth was positive. The
VIX declined, finishing within its short term trading range (and closer to its
lower boundary), below its 50 day moving average and within an intermediate
term downtrend. A check with our
internal indicator revealed that in a 153 stock Universe, 47 are near, at or
slightly above their all time highs (comparable to the S&P).
The
long Treasury was up, closing within a short term uptrend, above its 50 day
moving average and within an intermediate term downtrend.
GLD
fell again, ending in short and intermediate term downtrends and below its 50
day moving average. Untradeable.
Bottom
line: the Averages broke their very
short term downtrends, likely paving the way for a run higher. They still need to bust through their former all-time
highs (16601/1898) before taking on the upper boundaries of their long term
uptrends. However, when the headline
driving the Market is the Market momentum itself, it seems probable to me that
the indices will visit those boundaries.
On the other
hand, when the Market divergences keep growing and the Market leadership keeps
narrowing, the Averages are going to run out of steam; and in my opinion, those long term boundaries probably
provide sufficient resistance to halt this advance.
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.
The
history of six day winning streaks (short):
Fundamental
Headlines
The
US dataflow continues mixed: March existing home sales were down, though not as
much as expected, weekly retail sales were mixed and the April Richmond Fed
manufacturing index was better than anticipated. In line.
Nothing
overseas except the continuing instability in Ukraine:
And:
this would also qualify for Wednesday morning humor, if it weren’t so tragic
(medium):
***overnight,
EU April PMI showed improvement, Chinese manufacturing declined, the yuan fell
to four month lows and bad debts rose.
Bottom line: our
economy continues to be the bright spot in the investment outlook. Short term, I suppose that I would also have
to list Market momentum as a positive.
The problem that I monotonously keep referring to is the terrible risk
(Fair Value, as calculated by our Model)/reward (upper boundaries of the
Averages long term uptrends) equation.
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.
Wednesday
morning humor (short):
The
early read on this season’s earnings and revenue ‘beat’ rates: (short):
The
ubiquity of ‘lost decades’ (short):
The
bubble the Fed cares about the most (medium and a must read):
Bernanke: lies, ignorance or self-delusion (short):
The
sorry record of Fed ‘forward guidance’ (short):
The
latest from David Einhorn (medium):
Will
pension funds be rotating out of stocks into bonds? (medium):
http://www.zerohedge.com/news/2014-04-22/here-comes-next-great-rotation-out-stocks-and-bonds
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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