The Morning Call
4/29/14
The Market
Technical
The indices
(DJIA 16448, S&P 1869) yo yoed yesterday, first up big, then down, then
closing up. Both finished above their 50
day moving averages but did nothing to negate the developing head and shoulders
formations. The S&P closed within
uptrends across all timeframes: short (1819-1996), intermediate (1773-2573) 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.
In a surprise
break from the recent pattern, volume was up; breadth improved only
slightly. The VIX fell, remaining within
a short term trading range and an intermediate term downtrend and below its 50
day moving average.
The long
Treasury declined but continued to trade well within its short term uptrend,
above its 50 day moving average but within an intermediate term downtrend.
GLD dropped,
continuing its dreadful performance of late.
It closed within short and intermediate term downtrends and below its 50
day moving average.
Bottom line:
though Monday’s pin action had a touch of schizophrenia, the Averages reversed
Friday’s rough performance. That
bolstered the notion of a consolidation following the rapid eight day run up in
prices. While the developing head and
shoulders pattern was not negated, a strong near term follow through would.
I continue to
believe that the best bet is for the indices to challenge the upper boundaries
of their long term uptrends, but fail. 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.
Historical
stock performance in midterm years (short):
http://blog.stocktradersalmanac.com/post/Sixth-Years-of-Presidents-Term-Historically-Bullish-SPY-DIA
The
Fed and Tuesday’s (medium):
Update
on sentiment (short):
Fundamental
Headlines
Yesterday,
the economic news was a positive both here and abroad: March pending home sales
were well above expectations, ditto the April Dallas Fed manufacturing index;
finally, in contrast to what has been a drumbeat of disappointing stats, Japanese
March retail sales were very strong.
***overnight,
the UK reported first quarter GDP up but short of expectations, April German
CPI fell and Spanish unemployment rose (it is already at 25%+).
On
the other hand, there is our banking system which collectively continues to
prove that it is unworthy of our confidence.
The latest example is Bankamerica suddenly having to revise its recent
positive financial report (medium):
Ukraine
is being pointed to as the source of Friday’s (Russia to invade Ukraine over
the weekend) and yesterday’s (it didn’t…yet) pin action. I am sure Putin is having a grand ol’ time yanking
all of our collective chains; and I am sure that it will continue. How it ends, only The Shadow knows. However, I maintain the opinion that Putin
will be happy with the outcome---which likely means that the Ukrainians won’t.
The
latest from Ukraine:
Don’t
forget about China. The government
continues to enact policies to shut down speculation (short):
Bottom line: (1)
the economy continues to advance albeit sluggishly, (2) we will hopefully know
more about Fed policy come Wednesday [FOMC meeting], though, given its recent
communications policy, I am not going to bet on it, (3) I am in the midst of
watching the first season of House of Cards and we should be so lucky to have a
ruling class that intelligent, (4) internationally, things are a mess with the
Chinese economy and the Ukraine at the top of the list of potential problems.
Meanwhile,
investors have remained unconcerned; and until they are, stocks are likely to
go higher—despite rich valuations (as calculated by our Model) and an increasing
number of technical divergences. So as I
noted above, the most probable Market scenario appears to be a move to the
upper boundaries of the Averages long term uptrends.
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.
The
latest from John Mauldin (long but always a good read):
The
latest from John Hussman (medium):
Why
it is hard to win in investing (medium):
Deutsche
bank’s derivative exposure (medium):
Consumer
spending and recession (medium):
US
corporate earnings versus the rest of the world (short):
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